Understanding The Risks Of Using Spreadsheets For Crypto Accounting

Spreadsheets might be the most common tools accountants use. They’re also the riskiest.

Unlike automated systems, spreadsheets are all but certain to trigger human error. Whether through negligence or a slip of the hand at the keyboard, spreadsheets introduce remarkable uncertainty into accounting.

These risks exist whether your company relies on crypto financing or not, but they’re more complicated when it does. Crypto is a new field with different regulations. The cryptographic aspects of these transactions make them more difficult to classify, but reporting on each is absolutely critical for accurate books and when dealing with taxation

Yet crypto finance departments often default to using spreadsheets. This accounting tool is ubiquitous in the industry and its software is accessible and user-friendly. But spreadsheets can become unwieldy, growing too big to be useful as they accommodate increasingly complex transactions and documentation. Without appropriate support from IT and security teams, spreadsheets become overly complex and prone to errors. In fact, up to 90% of spreadsheets include errors.

Here’s a closer look at how spreadsheets introduce unnecessary risks into crypto accounting:

High likelihood of inaccuracies

Spreadsheets use formulas to be effective. While some formulas are fairly straightforward, they can easily become more complex, and with increased complexity comes greater risk. Spreadsheet software unfortunately doesn’t indicate when a formula was entered incorrectly. It runs the calculation that you ask for, returning incorrect data every time.

Accounting programs can identify data entry errors, but spreadsheets can’t. There’s no verification system to flag the incorrect or unclear information that can misalign your books and pending financial projections.

There have been high-profile cases of errors like this, including the Barclays Capital purchase of Lehman Brothers assets after the 2008 crash. A first-year law associate working with Barclays on the deal reformatted the spreadsheet containing assets for purchase. The reformat revealed assets that were not supposed to be included, requiring a legal motion and amendment to deal with the discrepancy.

Fannie Mae attributed an error of more than $1 billion in shareholder value to a spreadsheet mistake that occurred when the company was transitioning to a new accounting system.

Lack of customizable features

Excel accounting lacks dynamic features necessary for modern accounting. In order to add a new requirement, you would need to amend an entire spreadsheet to add one line. This cumbersome process is out of sync with how companies need to operate today.

Crypto accountants in particular need to make adjustments quickly because they are in a new, fast-moving space. As new regulatory requirements come down and the rypto asset class is classified by governments, they will need tools that let them adjust their processes and streamline operations more intuitively.

New automated technologies can meet this need, making their user experience seamless and user-friendly. There are no complex formulas to write and learn — all the necessary features are available right away, and they’re easy to use.

Unsecure data

Accountants and finance departments face substantial security risks when they use spreadsheets to manage their ASC 606 revenue reporting standards, according to Softrax. Excel is limited when it comes to tracking transaction changes, so there is no real visibility into the history of a given transaction. Because of this, auditing the business’ revenues can become overwhelming. Many business additionally do not password-protect their spreadsheets or use the cell protection features, leaving them vulnerable to potential misuse and data loss.

Zero agility

Excel reports don’t have the flexibility to work with true efficiency and generate organic insights, and it’s difficult to have accurate books when you can’t easily access your line items in reports.

As companies grow, spreadsheets prove to be particularly weak tools. This is because there may be multiple entities and currencies to account for, and adding worksheet tabs all the time is inefficient. There are also challenges to sharing data across your sheets, further complicating critical processes and increasing the chances of error, Softrax notes.

Crypto accountants will increasingly need tools that allow them to see the fine details of their transactions and manage multiple crypto asset classes from a unified dashboard. As the crypto space grows, they’ll also require scalable platforms to accommodate rapid acceleration and growth of transaction volumes

The future of accounting

Spreadsheets are simply unsustainable, especially for crypto asset management. Automated platforms not only reduce chances of error, they also maintain better records of a company’s transactions. They can grow as the company grows, so new accounts and locations can be integrated into the overall picture. Even more importantly, the results of all reports and sums are exceptionally accurate.

Sophisticated software also allows for customization based on where the business is located and what’s it’s focused on at any given time. Accounting software designed in accordance with regulatory requirements make for easier reporting and proactive compliance.

For crypto accountants, automation is truly the only way forward. Spreadsheets won’t be of assistance as a company grows, and will only create avoidable trouble for them as they adapt to an ever changing status-quo.