As blockchain adoption moves like wildfire through government and business sectors, a major audit and consultancy firm, Price Waterhouse Cooper (PwC), is providing a distinct caveat for executive directors of businesses that have some relation to cryptocurrency markets.
Specifically, Cointelegraph reports today that PwC is taking aim at situations involving possible insolvency, noting key measurements like cash flow and balance sheet assessments that companies may have to determine if they are becoming insolvent.
Audit experts contend that cryptocurrency assets can make it more difficult to figure out certain ambiguities around a company’s solvency status.
“As for any other volatile asset class, cryptoassets with their wide swings in value require extra care when assessing your company’s financial viability,” analysts write in the released guide entitled Crypto Insolvency – Ten things every director of a crypto firm needs to know when things start to go wrong. “Further, the lack of clarity on the accounting treatment of cryptoassets and as of yet, no broad consensus on taxonomy in the crypto world or how to accurately value cryptoassets, means that ambiguity may arise when evaluating the solvency status of your crypto firm.”
PwC analysts address various scenarios around liquidation, such as a liquidation triggered by an aggressive creditor or one done voluntarily by internal leadership.
“In the case of a compulsory liquidation,” analysts write, “a disgruntled creditor will have made the decision to appoint a liquidator through a Court process. Whilst you may be able to put forth a choice of liquidator, there is no guarantee that your named individual will be appointed – in the usual course, the creditors, and or the Court will make that decision.”
There’s also the question of multiple jurisdictions, where companies with crypto assets often have a broad footprint.
PwC cites “startup challenges” that may lead crypto related firms into “financially stressed situations.”
Purchasing some protection in the form of a Directors and Officers insurance cover, PwC says, may help.
“(A D&O cover) can provide you with financial protection against the consequences of actual or alleged wrongful acts when acting in the scope of your managerial duties,” analysts explain. “You should be aware however, that commonly D&O does not cover fraudulent, criminal or intentional noncompliant acts nor does it cover you if you obtained illegal remuneration or acted for personal profit. … It is important for directors to take sensible steps to mitigate the risk of liability, seek appropriate advice and review the company’s options and record justifications for your decisions at each stage.”
This influential guidebook on handling financial jeopardy can be useful for those who need to understand how cryptocurrency assets can affect public companies. Meanwhile, traders and investors can factor this liability into the picture when it comes to investing in emerging cryptocurrencies and trying to predict the wild swings of a volatile market.