CFO Studio Magazine with Claude Draillard, CFO, Honda Aircraft Company

cfostudio.com 21 Raising capital is changing as crowdfunding is growing around the world. Kickstarter was an early website where startup companies could find funding without providing any equity or adding shareholders. After Bitcoin’s successful launch, many other organizations started selling coins or tokens to investors through an Initial Coin Offering (ICO), in a process similar to an Initial Public Offering (IPO); however, an ICO offers coins or tokens instead of equity. These coins or tokens can then be traded on coin or token exchanges, but not on stock exchanges. The U. S. Securities and Exchange Commission (SEC) has not yet decided how to regulate these new coins and tokens, and has warned companies not to sell their coins and tokens to U.S. investors unless they are accredited. Some countries have defined security tokens, utility tokens, asset tokens, payment tokens, and hybrid tokens. Currently, the SEC claims that all tokens are security tokens, thus discouraging blockchain companies from filing in the United States. Additionally, as the ICO raises capital without providing equity, the accounting for this new cash or coins (asset) must be determined. Is there an offsetting liability or debt, or a promise to develop the proposed platform under IAS 32.8 (contract from financial asset) or IFRS 15 (revenue from contracts)? Is this deferred revenue to be earned later? The IFRS, Financial Accounting Standards Board, SEC, and other regulators must help define these accounting transactions soon. As our currency independence continues to grow around the world, our accounting systems need to be improved and trusted. The global digital economy will evolve from many innovative digital applications using blockchain technology over secure and trusted networks. The distributed ledger accounting systems will be required to ensure that financial transactions cannot be changed in the future. Michael S. VanPatten is CFO of True Influence Distributed digital applications that are built on blockchain technology allow buyers and sellers to easily exchange tokens for products and services. Many of these applications use blockchain networks that allow members to buy and sell products and services within a common market. These networks provide trust, security, and expedient smart contracts to complete the acquisition process faster than with existing processes. New Digital Market Places (DMP) will provide various targeted markets for common buyers and sellers to easily conduct purchasing transactions. As the services are delivered, the tokens are automatically moved to the seller’s digital wallet from the escrow. After the transaction is completed, the buyer and seller will rate each other’s participation in the exchange, and that will be recorded to their community scores. These scores are seen by all the network’s members and can be used to negotiate future pricing and/or terms. Many companies require written agreements, purchase orders, or contracts to explain the pricing, delivery, and terms & conditions of a transaction between a buyer and seller. The process to negotiate these agreements can delay the closing of the sale and the delivery of the products or services. If companies can agree on the basic agreement terminology upon joining a blockchain community, this will accelerate the completion of the deal and provide auditors with documented revenue recognition criteria. Nick Szabo, a computer scientist and inventor of Bit Gold in 1998, first proposed “smart” computerized contracts. Most blockchain applications today use a “smart” electronic contract that is agreed upon by consensus of the parties. Smart contracts include standard financial, business, and legal arrangements that are generated using software for monitoring compliance and execution of delivery. As digital transactions become the norm, using smart contracts will make digital ledger accounting a standard for maintaining trust. INITIAL COIN OFFERING (ICO) NEW DISTRIBUTED DIGITAL APPL ICATIONS SMART CONTRACTS