a glimpse into the EU and US markets

In today’s newsletter, Ganna Vitko, president of the Toronto Chapter of Women in Crypto, takes us through accounting rules that are in place for crypto and digital assets and some of the challenges of dealing with these new assets.

Then, in Ask an Expert, Aaron Brogan of Brogan Law answers questions about token issuance and its tax implications.

– Sarah Morton

The accounting and auditing challenges for crypto funds: a glimpse into the EU and US markets

The crypto market poses significant challenges for auditors and accountants in all jurisdictions. These are some of them.

What to Know:

• Since digital assets do not fit neatly into existing Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) frameworks, there’s a lot of uncertainty around their classification, valuation, and disclosure in both the EU and the U.S.
• While the EU is slowly moving toward better standardization through new regulations, the U.S. continues to rely on interpretive approaches.
• All of this leaves auditors, accountants, and fund managers to navigate higher inconsistency and risk.

The finance industry has undergone an extraordinary metamorphosis in the past decade. With digital assets becoming full-fledged parts of the financial ecosystem, every market player has had to adapt to new circumstances.

No one has had it more difficult than auditors and accountants. Specifically, conventional audit and accounting practices — based on the traditional financial instruments and reliable infrastructure — are not enough to contend with the ever-changing world of digital wallets and distributed ledgers.

Below, we’ll discuss some of the most prevalent challenges that auditors and accountants are facing, both in the U.S. and in the EU.

The core of the issues

At the heart of crypto accounting and auditing issues lies a fundamental mismatch: digital assets simply do not fit into long-established frameworks. For instance, under the U.S. GAAP and the IFRS, assets are grouped into clearly defined categories such as cash, securities, derivatives, or intangibles.

However, cryptocurrencies defy such straightforward classifications. Are they financial instruments? Intangible assets? Or should they be seen as inventory? Despite recent attempts, not many jurisdictions have managed to fully define them.

This lack of clarity has several negative effects, as it shapes how crypto holdings are validated, when impairments are recognized, and how gains and losses are actually recorded in financial statements.

Regulatory pressure and enforcement trends

We have to note that this accounting and custody ambiguity is unfolding in an environment where regulatory scrutiny is at an all-time high. While not all SEC enforcement actions relate directly to crypto or audit failures, recent data on accounting and auditing enforcement offer a useful window into the compliance conditions that digital asset funds now operate in.

The data in the table above reveal a notable shift in enforcement dynamics. For one, it is clear that the number of respondents in accounting and auditing cases declined in fiscal year 2024. However, the average settlement amounts increased significantly, especially for individual respondents. This pattern points to a shift away from broad-based enforcement and a move toward fewer cases with higher financial stakes. That, in turn, increases the personal and professional risk for everyone involved.

On the other hand, Europe is moving along a markedly different path. As Markets in Crypto-Assets (MiCA) enters phased implementation and supervisory coordination strengthens across all member states, the emphasis is slowly shifting to formalized compliance frameworks and standardized reporting obligations.

Thus, there is a contrast in regulatory mechanics between these jurisdictions. In the U.S., enforcement intensity ebbs and flows with policy direction and case selection. On the other hand, EU codification is advancing through structured legislative harmonization. Both of these dynamics shape the governance environment in distinct but consequential ways for crypto fund managers and their auditors alike.

Looking ahead: best practices and innovation

Amid regulatory and technical uncertainty in the EU and the U.S., market participants are doing their best to proactively adopt best practices. They include:

• Regular third-party attestation of reserves
• Independent valuation providers using multi-exchange pricing
• Enhanced internal controls over crypto operations
• Investment in audit technologies that leverage blockchain analytics.

Auditors and accountants themselves are expanding their skills and partnering with specialists, which is a big step in the right direction.

Conclusion

At the moment, accounting and auditing for crypto funds are at a crossroads. Issues such as fragmented regulation, volatile markets, and novel custody arrangements all strain legacy financial frameworks. In the EU, new regulations signal a move toward better harmonization, while the U.S. largely continues to rely on creativity and interpretive approaches.

For auditors and accountants alike, navigating these waters demands more technical knowledge and active engagement with all emerging guidance. In the end, matters will get better once more improved frameworks pop up. Only they can enhance transparency, reduce risk, and support sustainable growth in the crypto fund ecosystem.

– Ganna Vitko, president, Toronto Chapter of Women in Crypto

Ask an Expert

Q. My client is considering launching a meme coin. What should they take into account?

The SEC has provided guidance that it does not consider certain “meme coins” to be securities. If a client wishes to sell these tokens, they should be aware that the tax treatment of meme coin sales is not equivalent to an exempt securities offering. IRC § 1032 says that proceeds from stock are not taxable income, but this is a statutory creation with no crypto analogue. If your client sells meme coins, they may owe ordinary income tax.

Q. How might this change in the future?

There has been a push among crypto legal practitioners, such as Miles Jennings, to re-shore cryptocurrency projects. However, many projects prefer to make offerings offshore in part to attempt to avoid the tax burden of issuing in the United States. Tax is a live policy issue among crypto lobbyists in Washington, D.C., and a solution to the issuance conundrum could be the subject of future legislation.

– Aaron Brogan, managing attorney, Brogan Law

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