Until last year, digital currencies seemed like a futuristic experiment, with few people buying into their sustainability and limited outlets for exchanges. However, digital currencies such as bitcoin are now accepted at a variety of businesses from publicly traded companies like Overstock.com to online outlets such as Etsy, and many small businesses. In addition, digital currency exchanges and even ATMs are increasing, further expanding the prevalence of these denominations.
As with any new technology, the strategy to accept digital currency for payment can increase revenue and clientele, but leave the organization susceptible to unforeseen risks. As part of the risk assessment process, internal auditors can review internal and external changes posed by these currencies and provide management with the tools necessary to mitigate associated risks.
The Revenue Process
Although the revenue process is fundamental to the sustainability of all organizations, many organizations are drastically reshaping their revenue-cycle activities, including payment processing and the forms of payment accepted for goods and services. For some organizations, that means accepting digital currencies.
While there are many digital currencies, bitcoin is the most commonly accepted, with more than 12.8 million (worth about US$8 million) in circulation as of June 1 and an estimated 10,000 users. With no readily accepted or legal definition and no U.S. federal government or central bank backing, large fluctuations in bitcoin's value--from less than US$1 to more than US$1,000 last year--have caused many consumers, investors, and businesses to question its viability. Moreover, volatility associated with digital currencies may affect a company's ability to meet revenue-cycle objectives. Such risks may prevent companies from accepting those currencies and expanding their customer base. However, service providers such as Coinbase allow merchants to accept digital currencies without ever having possession, enabling them to avoid volatility, financial reporting, and tax-compliance risks.
The Many Risks
In an Investor Alert released in May, the U.S. Securities and Exchange Commission cites specific concerns regarding the acceptance and usage of bitcoins, including the lack of central authority, government regulation, difficulty in tracing money, lack of insurance and recoverability, volatility, and security. In addition, the payment processing associated with digital...