For private enterprises that hold, issue, or trade digital assets, the path to an initial public offering (IPO) is often accompanied by unique complexities and potential pitfalls. This stems in part from the new challenges that assets such as cryptocurrencies, stablecoins, and digital tokens bring to accounting treatment, internal controls over financial reporting, and auditing. At the same time, enterprises in this field typically have streamlined financial reporting teams, informal processes, and a lack of written documentation of internal controls.

Robert Sledge, co-lead partner of KPMG LLP's digital assets and fintech practice, said that when digital asset enterprises prepare for an IPO, issues surrounding rights, custody, and contractual arrangements require special attention. He noted: "You can relatively easily see digital currencies in wallet addresses, but the real complexity often lies in evaluating matters that cannot be determined solely through blockchain queries."

For digital asset enterprises considering an IPO, addressing these complexities early on may determine whether they smoothly submit their filing documents or encounter costly and time-consuming setbacks.

Seemingly minor accounting assessments can have significant impacts

A high-impact accounting policy issue that digital asset enterprises often face is the gross versus net method of revenue recognition. In digital asset transactions, U.S. GAAP may require: if the enterprise acts as the principal, it recognizes the full gross amount of the transaction; if it merely acts as an agent, it recognizes only the net commission. The enterprise's own view of its functional role may differ from its classification under accounting rules.

Sledge pointed out: "The net amount may be an immaterial number, but the gross amount can be very significant. And from a disclosure and investor relations perspective, the gross amount may require more attention." The same dynamic may also appear in staking arrangements, where the distinction between total staking revenue, amounts passed through to other parties, and net staking commissions is equally crucial. Additionally, Sledge added, whether collateral or customer digital assets are considered on-balance sheet or off-balance sheet may depend on a single contract clause. He observed that accounting assessments of contract terms have led to multi-billion-dollar adjustments, highlighting the importance of understanding these seemingly minor details.

Three things to get right before filing

  1. Control over digital asset rights, and a formal, documented framework for private key controls.Enterprises typically know at an operational level that they control their wallets, but translating that into financial reporting controls requires additional rigor.
  2. General ledger entry controls.Documented controls governing transaction recording and approval processes are a common weakness in organizations that are growing rapidly but have smaller teams.
  3. For enterprises with venture capital-style investment portfolios, documented valuation policies and controls over fair value measurements need to be established.These measurements are often based on unobservable inputs (such as internal models and management assumptions) rather than market prices.

Insufficient attention to these potential gaps before the IPO may lead to significant delays or control deficiencies. Discovering errors late in the process, or identifying issues during discussions with regulators, may require last-minute modifications to the financial statements, costing far more than the time needed for initial preparation. Sledge cautioned: "You may feel like you are moving quickly, but if you rush, you may end up moving backward in the end."

Winning trust through clarity

Ensuring the accuracy of the numbers is only part of the job. For enterprises involved in digital assets, presenting a clear and coherent financial picture is equally important. The financial statements, Management's Discussion and Analysis (MD&A), and risk factors sections must be consistent. Reviewers will quickly point out inconsistencies between what the enterprise states in the financial statements and what appears elsewhere in the registration statement.

Sledge warned: "Reviewers will first read the financial statements, then read the business description and risk factors, and if those sections look like they are describing two different companies, it may raise concerns." He added that enterprises that invest in transparent reporting can also improve investor relations. Holding dedicated investor and analyst education sessions to explain how transactions affect the income statement, balance sheet, and cash flow statement can help build investor confidence.

CFOs need to look beyond technical considerations

Despite the many technical and regulatory complexities accompanying an IPO, Sledge believes the most decisive factor is unrelated to blockchain infrastructure or digital assets themselves, but rather whether the CFO has assembled the right team to navigate the transition to becoming a public company. Public company financial reporting demands precision, discipline, and consistency. Expectations for accuracy, timeliness, and disclosure are high, and the consequences of mistakes can be severe. Sledge noted that CFOs need experienced managers who understand what these expectations look like in practice and who have the judgment and confidence to identify issues early rather than reactively.

Ultimately, the responsibility falls on the CFO. Sledge stated: "You sign off confirming the numbers are accurate. The best thing you can do is surround yourself with people you trust to produce high-quality financial reporting with integrity." Strong systems and controls are important, but they are not sufficient on their own. Without a team that understands the rigor of being a public company and can manage complexity under pressure, even well-designed processes may fail to deliver the desired results.