For private companies that hold, issue, or transact in digital assets, the path to an initial public offering can include some unique complexities and potential pitfalls.
That’s partially because digital assets like cryptocurrencies, stablecoins, and digital tokens, can present new accounting, internal control over financial reporting, and auditing considerations. But it is also partially because companies operating in this space can have lean financial reporting teams, informal processes, and a lack of documentation of internal controls.
For digital asset companies, questions around rights, custody, and contractual arrangements can require special focus when it comes time to prepare for an IPO, according to Robert Sledge, a Partner who co-leads KPMG LLP’s digital asset and fintech.
“You can see the digital currency in the wallet address relatively easily,” says Sledge. “But it's the evaluation of things you can't just look up on a blockchain that tend to be where the real complexity is.”
For digital asset companies considering an IPO, getting ahead of these complexities can make the difference between a smooth filing and a costly, time-consuming setback.
Accounting evaluations that seem small can have a big impact
One often highly consequential accounting policy issue for digital asset companies is gross versus net revenue recognition. In digital asset trading, GAAP may require a company to recognize the full gross value of a transaction if it’s acting as a principal, but only the net commission if acting as an agent. A company’s own view of its functional role may be different than its classification under accounting rules.
“The net amount could be an immaterial number, but the gross amounts could be very material,” Sledge notes. “And the gross amounts may require more attention from a disclosure and investor relations perspective.”
The same dynamic can also arise in staking arrangements, where the distinction between gross staking revenue and amounts passed through to other parties versus net staking commissions can be equally consequential. Similarly, Sledge adds, the difference between what whether collateral or customer digital assets are considered on or off the balance sheet can turn on a single contractual term. Sledge notes that he has seen the accounting evaluation of a contractual provision cause billions of dollars to shift, indicating just how important it is to have a clear understanding of these seemingly small details.
Three things to get right before filing
1. Controls around the rights to digital assets and a formal, documented framework for demonstrating control of private keys. Companies often know operationally that they control their wallets but translating that into a financial reporting control requires additional rigor.
2. Journal entry controls over the general ledger. The documented controls governing how transactions are recorded and approved are an area where fast-growing organizations with smaller teams frequently have gaps.
3. For companies with venture-style investment portfolios, documented valuation policies and controls over fair value measurements that are based on unobservable inputs, such as internal models and management assumptions, rather than market prices.
Inadequate attention to potential gaps in these areas ahead of an IPO can wind up causing significant delays or result in control deficiencies. Errors found late in the process, or discovered in discussions with regulators, can require last-minute changes to financials that cost far more time than the original preparation would have.
“You might feel like you’re moving fast,” Sledge says, “but if you rush the process, you can end up setting yourself back.”
Earning trust with clarity
Getting the numbers right is only part of the job. For companies involved with digital assets, portraying a clear, cohesive financial picture is also consequential. The financial statements, the management discussion and analysis, and the risk factors section all need to be in harmony. Reviewers are quick to flag disconnects between what a company says in its financials and what it says elsewhere in a registration statement.
“Examiners will read the financials, then they'll read the description of the business and the risk factors, and if those sections look like they’re describing two different companies, that can generate concerns,” Sledge cautions.
Companies that invest in transparent reporting also can benefit from improved investor relations, Sledge adds. The ability to explain how transactions flow through the income statement, balance sheet, and cash flow statement, including through dedicated investor and analyst education sessions, can build investor confidence, he says.
What CFOs must consider beyond technology
For all the technical and regulatory complexity that accompanies an IPO, Sledge says the most decisive factor has nothing to do with blockchain infrastructure or digital assets themselves. It is whether the CFO has assembled the right team to navigate the transition to life as a public company.
Public company financial reporting demands precision, discipline, and consistency. Expectations around accuracy, timing, and disclosure are high, and the consequences of missteps can be significant. According to Sledge, CFOs need experienced leaders who understand what those expectations look like in practice - and who have the judgment and confidence to surface issues early, rather than react to them late.
Ultimately, accountability rests with the CFO. “You’re signing off that the numbers are right,” Sledge says. “The best thing you can do is surround yourself with people you trust to produce high quality financials with integrity.” Strong systems and controls matter, but they are not enough on their own. Without a team that understands public company rigor and can manage complexity under pressure, even well-designed processes can fall short.
