Preface

The emergence of cryptocurrency has brought about a paradigm shift in the world of finance,
creating new opportunities and challenges for accounting and auditing professionals. As the
adoption of cryptocurrencies continues to grow, it is crucial for accounting and audit students to
understand the complexities and nuances associated with the accounting treatment, reporting, and
auditing of digital assets.

This document aims to provide a comprehensive introduction to the fundamental aspects of

cryptocurrency in the context of accounting and auditing. It explores key concepts, regulatory
considerations, and practical applications that are essential for students who aspire to excel in the
evolving landscape of digital finance.
 Introduction to Crypto Currency
📍 1. Aam Zindagi se Shuruaat (Normal Currency vs Cryptocurrency)

Aapko maloom hai ke hum rozana rupees (PKR), dollars (USD) waghera use karte hain — ye hoti hain
traditional currencies (fiat currencies). Inhein:

 Central Bank (jaise State Bank of Pakistan) issue karta hai

 Government control karti hai
 Ye physical form mein hoti hain (note/coin)
 Agar aap kisi ko paisa bhejna chahein, toh aapko bank ki zarurat parti hai

Problem:

 Bank slow ho sakta hai

 Transaction costly hoti hai
 Har mulk ki currency alag hoti hai
 Government jab chahe paisa chhap deti hai → inflation hota hai

📍 2. Cryptocurrency Kya Hai? (Asan Urdu mein)

Cryptocurrency ek aisi digital currency hai jo:

✅ Sirf internet par hoti hai

✅ Computer programs isay banate hain
✅ Kisi bank ya government ka control nahi hota
✅ Aap isay duniya ke kisi bhi kone mein instantly bhej sakte hain
✅ Isay secure karne ke liye Cryptography use hoti hai

📍 3. Example se Samajhte Hain

🎯 Example: Bitcoin

Bitcoin duniya ki pehli aur sab se mashhoor cryptocurrency hai. Isay 2009 mein ek anonymous
shakhs/group "Satoshi Nakamoto" ne banaya.

 Bitcoin ka koi note nahi hota

 Aap isay mobile app ya computer wallet mein rakhte hain
 Aap internet ke zariye kisi ko directly bhej sakte hain — bina kisi bank ke
Jese:
Usama ne Ali ko 0.01 Bitcoin bhejna hai → usay sirf Ali ka Bitcoin address chahiye → 2 minutes mein
transaction complete ho gayi → bank nahi, fees nahi, delay nahi

📍 4. Blockchain Kya Hai?

Blockchain ek digital record keeping system hai.

Sochiye ek badi notebook jismein:

 Har transaction ka record likha ja raha ho

 Ye notebook public hoti hai → har shakhs dekh sakta hai
 Magar koi bhi data change nahi kar sakta
 Har page (block) ek naya group of transactions hota hai
 Sab pages ek chain mein bandhe hote hain → Isliye naam hai Blockchain

Ye system fraud proof hai — data once written cannot be altered.

📍 5. Kaise Banayi Jaati Hai Cryptocurrency? (Mining)

Cryptocurrencies (jaise Bitcoin) mine ki jaati hain.

 High-powered computers complex mathematical questions solve karte hain

 Jo pehle solve kare → usay reward milta hai (Bitcoin)
 Ye system secure karta hai blockchain ko
 Isay kehte hain Proof of Work

📍 6. Wallet Kya Hota Hai?

Cryptocurrency ko rakhne ke liye aapko digital wallet chahiye hota hai:

 Wallet app hoti hai (Trust Wallet, Metamask, Binance etc.)

 Har wallet ka ek address hota hai (jaise account number)
 Aap yahan apne coins rakh sakte hain
 Wallet secure hota hai — password, encryption, etc.

📍 7. Exchange Kya Hota Hai?

Jaise aap PKR ko USD mein badalwate hain, waise hi crypto ko bhi:
  Buy/sell karne ke liye aap Crypto Exchange use karte hain
(e.g., Binance, Coinbase, Kraken)
 Yahan aap PKR → Bitcoin ya Bitcoin → Ethereum convert kar sakte hain
 Market ka rate hota hai
 Demand/supply se price change hoti hai

✅ Advanced Cryptocurrency Concepts — Asaani se Samajhye

🔹 1. Blockchain Technology – Ghar ki Register Copy Jaisa System

Blockchain ek digital daftar (register) hota hai jisme:

 Har transaction ka record hota hai

 Ye record public hota hai (har shakhs dekh sakta hai)
 Record ko delete ya change nahin kiya ja sakta

🔸 Example:

Sochiye aap ne Ali ko 0.5 Bitcoin bheja

→ Ye transaction ek block mein likh di gayi
→ Block chain mein lag gaya permanently
→ Har kisi ke paas is transaction ka record aa gaya
→ Agar koi isay delete kare, system pakar leta hai

🔹 2. Mining – Digital Sona Dhoondhna

Mining ka matlab hai:

 Computer complicated calculations karta hai

 Jo pehla shakhs correct solution nikalta hai, usay reward milta hai (Bitcoin, Ethereum, etc.)

🔸 Real Life Example:

Sochiye 100 log ek puzzle solve kar rahe hain

→ Jo sabse pehle solve kare, usay ₹100 milta hai
→ Isi tarah, Bitcoin miners ka competition hota hai

Lekin:

 Ye kaam heavy computers se hota hai

 Bohat zyada bijli lagti hai
 Is liye "home mining" ab profitable nahi
🔹 3. Private Key & Public Key – Aapki Digital Lock & Key

Cryptocurrency wallet mein 2 cheezen hoti hain:

Type Kya Kaam Hai?

Public Key Aapka account number (log bhej sakte hain)

Private Key Aapka secret password (aap kharch kar sakte hain)

🔸 Example:

Jaise aap ka bank account number sab ko de sakte hain

Lekin ATM pin kisi ko nahi dete – same logic

Agar private key kho gayi = paise hamesha ke liye gaye!

🔹 4. Smart Contracts – Self Executing Agreements

Smart contracts aise programs hain jo khud se run hote hain jab condition puri hoti hai.

🔸 Example:

"Ali ko ₹100 tabhi do jab Usama approve kare"

→ Aap approval doge

→ Smart contract automatically Ali ko ₹100 bhej dega
→ Beech mein koi insaan, lawyer ya bank nahi

Ye use hota hai:

 Insurance mein
 Real estate deals mein
 Shariah-compliant contracts banane mein bhi

🔹 5. Decentralization – Be-Government System

Iska matlab:
  Koi central bank ya authority nahi hoti
 Poora network (har user) system ko run karta hai

🔸 Real Example:

Sochiye koi game hai jisme har player referee bhi hai.
Koi cheating kare to system collectively usay rokta hai

🔹 6. Cryptocurrency as Investment (Risk aur Return)

Log cryptocurrencies ko stocks ki tarah buy & hold karte hain.

🔸 Example:

 2010 mein 1 Bitcoin = $0.01

 2021 mein 1 Bitcoin > $65,000
 2024 mein kabhi $40,000 kabhi $70,000 → Bohat volatile

Yaani: Profit bhi bohat zyada, loss bhi

🔹 7. Stablecoins – Dollar Jaise Digital Coins

Stablecoins woh cryptocurrencies hoti hain jo kisi real currency se linked hoti hain.

Coin Backed By Example Use

USDT (Tether) US Dollar Remittance, Trading

BUSD US Dollar Trading on Binance

→ Ye zyada stable hoti hain

→ Volatility kam hoti hai

🔹 8. DeFi (Decentralized Finance)

DeFi ka matlab hai:

 Traditional financial services (banking, loans, trading)

  Bina bank ya broker ke
 Sirf crypto aur smart contracts se

🔸 Example:

Aap kisi DeFi platform pe jayen

→ Apna Bitcoin “deposit” karein
→ Wahan se “loan” le lein kisi stablecoin mein
→ Sab kuch code se hota hai – koi insaan nahi

⚠️ Risks & Concerns

Risk Type Kya Ho Sakta Hai?

Volatility Price kabhi bhi gir sakta hai

Hack Risk Exchange hack ho sakta hai

Regulatory Government ban ya restrict kar sakti hai

No Reversal Galat bhej diya → paisa wapas nahi

✅ Audit of Cryptocurrency-Based Business – Full Documentation Flow (Start to End)

📌 1. Nature of Business – Initial Understanding As Per ISA 315

Auditor ko sab se pehle samajhna hoga ke:

 Business kis type ka hai? (Investment, Trading, Mining, Staking, NFT dealing, Exchange service,
etc.).
 Kya yeh crypto for own account ho raha hai ya on behalf of others (i.e., brokerage or
custodian)?

🔎 Required:

 Business Model Document / Whitepaper

 Founders’ Background Checks
 MOA/AOA or Business Registration Certificate (with crypto mentioned)
 Licensing / Regulatory Filings (agar applicable ho)

➡️ Purpose: Ye samajhna ke business legitimate hai aur kis kis crypto asset mein kaam ho raha hai.
📌 2. Onboarding on Crypto Exchanges (Wallet Creation)

Jab company ne crypto exchange (jaise Binance, Coinbase, Kraken, etc.) par account banaya:

🔎 Required:

 Exchange Account Opening Confirmation

 KYC/KYB Documents Submitted to Exchange
 Exchange Agreement or Terms & Conditions
 Wallet Address & Public Key Record

➡️ Purpose: Ye verify karna ke wallet kis ka hai, kis naam pe registered hai, aur ownership confirm ho
rahi hai ya nahi.

📌 3. Fiat Funding / Initial Investment Source

Jab crypto kharida gaya, tou kis account se paisa gaya?

🔎 Required:

 Bank Statement showing fiat outflow

 Ledger Entry of Initial Investment
 Source of Funds (SOF) documentation (esp. for large transactions)
 Cross-reference with Exchange Deposit Screenshot

➡️ Purpose: AML/KYC purpose ke liye funds ka source trace karna.

📌 4. Crypto Purchase Transactions

Ab crypto assets ki purchase transaction ki detail verify karni hai.

🔎 Required:

 Buy Order Confirmation from exchange

 Trade History Export (.csv or PDF)
 Blockchain Transaction Hash/ID (Explorer screenshot)
 Ledger Posting in Accounting System (like CoinLedger, QuickBooks, etc.)

➡️ Purpose: Verify karna ke crypto kitne price pe khareeda gaya, kis wallet mein gaya, aur kya books
mein sahi post hua.
📌 5. Crypto Wallet Records (Holding Proofs)

Auditor ko ye ensure karna hota hai ke jo crypto show kiya gaya hai, wo real mein exist karta hai ya
nahi.

🔍 Maqsad (Audit Purpose):

Auditor verify karta hai:

1. Existence – Kya asset waqai exist karta hai ya bas claim kiya gaya hai?
2. Completeness – Kya jitni crypto dikhayi gayi hai, sab record par hai?
3. Ownership – Kya yeh wallet aur crypto is client ke naam par hai?

✅ Sabse Pehle: Crypto Wallet Kya Hota Hai? Read from Here .. in 2nd Phase

Crypto wallet ek digital jagah hoti hai jahan crypto coins store kiye jaate hain — jaise aapka bank
account hota hai rupees ke liye, waise hi wallet hota hai crypto ke liye.

Do types hoti hain:

 Hot Wallet: Online wallet (Binance, Coinbase wallet etc.)

 Cold Wallet: Offline wallet (hardware wallet, USB devices jaise Ledger Nano)

📂 Auditor Ko Konse Documents Chahiye Hote Hain?

Document Explanation Audit Purpose

Public blockchain par

✅ Wallet Address Jaise "1BvBMSEYstWetq..." (BTC address)
trace karne ke liye

✅ Public Key & Yeh dikhaata hai ke

Jaise
Blockchain Explorer wallet mein kitni crypto
https://blockchain.com/btc/address/xyz
Link hai

✅ Timestamped Existence at audit date

Wallet ka real-time snapshot with date/time
Screenshot verify karne ke liye

✅ Seed Phrase Ownership verification

Owner declare kare ke wo is wallet ka malik hai
Declaration (Optional) (agar direct proof na ho)
🧠 Example Samajhiye:

Scenario:
Client ke financials mein BTC holdings show hain = 50 BTC.

Auditor kya karega?

1. Client se wallet address mangta hai (e.g., bc1qw...)

2. Auditor us address ko Blockchain Explorer par check karta hai
(e.g., https://blockchain.com/btc/address/bc1qw...)
3. Yeh confirm hota hai ke 50 BTC is address mein paday hain
4. Screenshot + timestamp verify karta hai ke audit date tak yeh holding thi
5. Ownership ka supporting evidence maangta hai:
o Wallet ka screenshot
o Declaration ke yeh wallet client ka hai
o Ya agar possible ho to live login demonstration ya digital signature

🔐 Seed Phrase ka Kya Role Hai?

 Har wallet ki ek secret key / seed phrase hoti hai (jaise 12 random words)
 Jiske paas yeh phrase hoti hai, wo us wallet ko control karta hai
 Auditor direct seed phrase to nahi mangta (confidential hoti hai)
 Lekin ek signed declaration le sakta hai ke "Main is wallet ka sole owner hoon"

📌 6. Crypto Sale / Exchange Transactions

Jab crypto becha jata hai ya kisi aur crypto mein convert hota hai (e.g. BTC → ETH):

🔎 Required:

 Sell Order / Trade Confirmation

 Capital Gains Calculation Sheet
 Sale Proceeds Deposit Confirmation (crypto ya fiat)
 Blockchain Explorer Hash of Transaction

➡️ Purpose: Sale accurately recorded hai? Gain/Loss correct hai? Tax treatment theek hai?
📌 7. Staking, Mining, or Yield Income (if any)

🔹 Pehle Concepts Ko Samjhein:

✅ 1. Mining:

Yeh ek process hoti hai jisme company ya individual blockchain network ko computational power
provide karta hai (e.g. Bitcoin mining), aur uske badlay mein new coins miltay hain.

✅ 2. Staking:

Yeh hota hai jab kisi coin (jaise ETH) ko lock kiya jata hai blockchain mein taake network secure ho —
aur uske badlay mein reward milta hai (passive income, like interest).

🔍 Auditor Ka Concern:

Auditor yeh check karega ke:

 Staking/Mining say jo income hui, uska proper trail hai ya nahi

 Jo reward milay, unko sahi tareeqe se accounting mein record kiya gaya hai ya nahi
 Kya yeh income genuine aur traceable hai blockchain par?

🔎 Required Documents (With Explanation):

📄 Document 💬 Kya Verify Karega?

✅ Mining Pool Statement (e.g. F2Pool,

Mining se kitna reward mila, kab mila, kaunsa coin tha
SlushPool)

✅ Staking Dashboard Screenshot (e.g. Kya coin stake kiya gaya? Kitna reward aaya? Consistent hai
Binance Staking panel) ya nahi?

Har received crypto reward ka blockchain-level proof

✅ Blockchain Transaction Hashes
(traceability)

✅ Income Logs / Earnings Statement

Kitna amount receive hua — daily/weekly summary
(e.g. from wallet or exchange)

Company ne accounting system mein income kab aur kitni

✅ Accrual Ledger Record
record ki? Kya matching hai above statements se?
✴️ Example:

Agar company ne 32 ETH stake kiya tha, aur 1 month ke baad 0.5 ETH reward mila:

 Auditor staking dashboard dekhega ke 32 ETH locked dikh raha hai

 Wallet transaction hash verify karega jahan 0.5 ETH receive hua
 Ledger check karega ke 0.5 ETH ki value (in PKR/USD) accounting mein record hui ya nahi

🎯 Purpose Recap (As You Wrote):

➡️ Passive Income Trace ho rahi hai?

– Blockchain aur dashboard se transaction confirm ho rahi hai ya nahi?
➡️ Recognition Proper Hai?
– Accounting entry sahi date aur amount par hui hai? Fair value lagayi gayi?

📌 8. Custody of Crypto Assets

Agar business clients ke liye crypto hold karta hai:

🔎 Required:

 Custody Agreement with Clients

 Client-wise Wallet Segregation
 Internal Controls Over Private Keys
 3rd Party Custodian Report (if applicable)

➡️ Purpose: Kya client funds separate hain? Custody proper hai? Control exist karta hai?

📌 9. Financial Reporting & Fair Valuation

Crypto Ko Balance Sheet Mein Kaise Report Kiya Jata Hai?

Jab auditor ko crypto assets (jaise Bitcoin, Ethereum, ya kisi aur cryptocurrency) ki reporting verify karni
hoti hai, toh unko yeh ensure karna padta hai ke crypto assets sahi tareeqay se balance sheet mein
report kiye gaye hain. IFRS/IAS ke standards ke hisaab se.
🔎 Auditor Ke Liye Required Information:

📄 Document 💬 Kya Verify Karega?

✅ Year-End Wallet Crypto assets ki total value at year-end. Kya ye balances accurate hain? Ye
Balances wallet balances directly represent karte hain company ki holdings.

Agar company crypto ko inventory ke roop mein treat kar rahi hai (IAS 2), toh
✅ Fair Value
fair value valuation ka method kya hai? Agar intangible assets (IAS 38) treat ho
Valuation Method
rahe hain, toh woh kaise value kiye gaye?

✅ Exchange Rate Agar crypto ko fiat currency mein report kiya gaya, toh kis exchange rate ka use
Used kiya gaya hai? Crypto-to-fiat conversion rate important hai.

✅ Revaluation
Kya revaluation gain ya loss properly record kiye gaye hain jab crypto assets ko
Gain/Loss Journal
fair value par report kiya gaya?
Entries

✨ Explanation:

1. Year-End Wallet Balances:

Jab auditor crypto ko balance sheet mein report karta hai, toh woh company ke wallet balances ko
check karega. Year-end par, company ke paas kitna crypto asset tha? Yeh balance asset side par
"Cryptocurrency" ya "Digital Assets" ke naam se show hota hai.

 Example: Agar company ke wallet mein 10 BTC hain, toh yeh balance sheet mein digital asset ke
roop mein show hoga.

2. Fair Value Valuation Method:

Crypto ko kis valuation method ke through report kiya gaya? IFRS ke according, agar crypto assets ko
inventory ke roop mein treat kiya ja raha hai, toh IAS 2 ka use hoga. Agar crypto ko intangible asset ke
roop mein treat kiya ja raha hai, toh IAS 38 apply hoga.

 IAS 2 (Inventory) – Jab crypto ko short-term trading ke liye rakha gaya ho, jaise crypto trading,
toh fair value ya cost se jo bhi lower ho, woh report kiya jata hai.
 IAS 38 (Intangible Assets) – Agar crypto ko long-term hold ke liye rakha gaya ho, toh fair value
ka use karke revaluation kiya jata hai.
3. Exchange Rate Used:

Agar crypto ko fiat currency mein convert karke report kiya gaya hai, toh auditor yeh check karega ke kis
exchange rate ka use kiya gaya hai. Yeh rate crypto market ke prevailing rate ke hisaab se hona chahiye.

 Example: Agar company ne 5 BTC ko sell kiya aur woh USD mein report kiya, toh auditor ko
dekhnna hoga ki kis USD/BTC exchange rate par transaction record ki gayi.

4. Revaluation Gain/Loss Journal Entries:

Agar crypto ko fair value par report kiya gaya hai (jo ke common hai jab long-term hold ya intangible
asset ke roop mein treat kiya ja raha ho), toh revaluation gain ya loss ki journal entry properly record ki
gayi hai ya nahi.

 Example: Agar crypto ka value year-end pe badh gaya, toh revaluation gain credited hoga, aur
agar value kam hui toh revaluation loss debited hoga.

🎯 Purpose (As You Mentioned):

➡️ Kya Assets Properly Value Kiye Gaye Hain?

 Auditor ensure karega ke jo crypto balance sheet mein dikhaaya gaya hai, uski fair value sahi
tareeqay se calculate ki gayi hai aur koi errors nahi hain.

➡️ Standard Compliant Hain?

 Auditor yeh check karega ke jo company ne IFRS/IAS rules follow kiye hain, woh sahi hai ya nahi.
Agar company ne inventory ya intangible asset ka treatment diya hai, toh woh IAS 2 ya IAS 38
ke accordance mein hona chahiye.

📝 Example Audit Steps:

Step What to Do

✅ Year-End Wallet Check wallet balances at year-end and ensure they match the amount
Balances reported in the financial statements.

Verify if the company followed IAS 2 or IAS 38 (Inventory vs Intangible Assets)

✅ Valuation Method
for reporting crypto.
 Step What to Do

Confirm if the correct exchange rate was used to convert crypto to fiat
✅ Exchange Rate
currency (if applicable).

Review journal entries for any gains/losses on crypto revaluation and ensure
✅ Revaluation Entries
they are correctly recorded.

📌 10. Taxation Compliance

Crypto gains pe agar tax lagu hota hai, tou:

🔎 Required:

 Capital Gain Working Paper

 Tax Return Filing with Crypto Disclosure
 Correspondence with Tax Authorities (if any)
 Withholding / VAT / GST Analysis (if applicable)

➡️ Purpose: Tax properly calculate kiya gaya hai? Any evasion?

📌 11. Risk & Control Review

Auditor Ko Crypto Risks Ki Control Kaise Evaluate Karna Hota Hai?

Jab auditor ko crypto business ka audit karna hota hai, toh unko yeh evaluate karna padta hai ke
business ne apne crypto risks ko kaise manage kiya hai. Crypto assets ki nature ke wajah se, yeh ek
high-risk area ho sakta hai (due to hacking, fraud, wallet access issues, etc.).

Auditor ka purpose yeh hota hai ke business ne apne risks ko identify kiya hai ya nahi, aur unko control
karne ke liye proper mechanisms hain ya nahi.

🔎 Required Information:

📄 Document 💬 Kya Verify Karega?

✅ Risk Management Business ki risk management policy ka analysis, jisme wallet security, fraud
Policy control, aur hacking se related controls included hon.
 📄 Document 💬 Kya Verify Karega?

✅ Internal Control Approval matrix (kaun decisions le sakta hai), wallet access controls (kaun
Document access kar sakta hai), aur internal procedures check karna.

✅ Insurance Agar business ne crypto assets ko insure kiya hai, toh insurance coverage ka
Certificate documentation check karna.

Login history, 2FA controls jaise security features check karna. Kya business ne
✅ IT Audit Trail
apne crypto systems ki security properly maintain ki hai?

✨ Explanation:

1. Risk Management Policy:

Crypto business ke liye ek risk management policy hona bohot zaroori hai, jismey wallet security, fraud,
aur hacking jaise risks ke control measures hon. Auditor is policy ko verify karega taake ensure kar sake
ke business ne apne crypto assets ko manage karne ke liye sahi procedures implement kiye hain.

 Example: Agar business ka wallet security policy hai, toh woh multi-signature wallets (jo
multiple private keys ki requirement rakhta hai) use karta hoga, taake assets ko unauthorized
access se protect kiya ja sake.

2. Internal Control Document:

Business ki internal controls ko check karna zaroori hota hai. Ismein approval matrix ka hona, wallet
access control, aur segregation of duties ka hona zaroori hai.

 Approval Matrix: Yeh specify karta hai ki kis employee ya manager ko crypto-related decisions
lene ka authority hai, jese ki transactions ko approve karna, wallet ko access karna, etc.
 Wallet Access Control: Yeh control karta hai kaun crypto wallet ko access kar sakta hai. Auditor
yeh check karega ke wallets ke access ka limitation sahi hai ya nahi, taake unauthorized log
access na kar sakein.
 Segregation of Duties: Iska matlab hai ke ek person ko na toh transaction initiate karne ki
authority ho, na hi approval dene ki. Isse fraud ya errors ka risk reduce hota hai.

3. Insurance Certificate:

Agar business ne apne crypto assets ko insure kiya hai, toh auditor ko insurance policy ki certificate ki
verification karni hogi. Yeh dekha jayega ke assets ko kis level tak cover kiya gaya hai aur insurer kaun
hai.

 Example: Agar business ne apne crypto wallet ko insure kiya hai, toh auditor yeh dekhega ke
policy kis type ke losses ko cover karti hai, jaise theft, hacking, ya fraud.
4. IT Audit Trail:

IT systems ka audit trail bhi important hota hai, jismein login history, 2FA (Two-Factor Authentication)
aur other security controls ko check kiya jata hai. Auditor ko verify karna padta hai ke business ke
crypto wallets aur other systems secure hain ya nahi.

 Login History: Yeh dekha jayega ke kis time, kis user ne system ko access kiya aur kis type ki
activity ki. Agar koi suspicious login activity ho, toh woh flagged hoga.
 2FA Controls: Kya business ne two-factor authentication (2FA) implement kiya hai? 2FA ek
extra layer of security provide karta hai jisme user ko apne credentials ke saath ek additional
code enter karna padta hai.

🎯 Purpose (As You Mentioned):

➡️ Business Risk Exposure Ka Assessment:

 Auditor yeh evaluate karega ke business apne crypto assets aur systems ke risks ko identify kar
raha hai ya nahi. Crypto markets volatile hote hain aur unmein fraud, hacking, ya loss ka risk
bohot zyada hota hai. Auditor ko yeh ensure karna hoga ke business ne is risk ko properly
manage karne ke liye systems aur processes implement kiye hain.

➡️ Control Design Ka Assessment:

 Auditor yeh check karega ke business ke internal controls effective hain ya nahi. Iska matlab hai
ke wallet access, transaction approvals, aur security features properly designed aur
implemented hon.

📝 Example Audit Steps:

Step What to Do

✅ Risk Management Verify the business’s policy for handling crypto risks like hacking and fraud.
Policy Ensure it covers key risk areas.

✅ Internal Control Review the approval matrix and wallet access controls to ensure proper
Document segregation of duties.

Check for an insurance certificate covering crypto assets against theft, fraud,
✅ Insurance Certificate
or hacking risks.
 Step What to Do

Verify login history and 2FA controls to ensure systems are secure and
✅ IT Audit Trail
transactions are logged properly.

Conclusion:

Jab auditor business ki crypto risks evaluate karta hai, toh uska main focus yeh hota hai ke business ne
apne crypto assets ki security aur management ke liye proper controls implement kiye hain ya nahi. Yeh
ensure karna zaroori hota hai taake business ko fraud, hacking, aur other risks se protect kiya ja sake.

📌 12. Regulatory Compliance (especially if operating globally)

Agar crypto business multiple countries mein operate kar raha hai:

🔎 Required:

 Country-wise License / Registration Proof

 AML/CTF Policy
 Compliance Officer Reports
 Regulatory Correspondence

➡️ Purpose: Kya business regulatory radar mein hai? Koi legal risk tou nahi?

Explanation of Each Difficult term used

above:
Crypto Type Business Explained
📌 1. Crypto Investment Business

Definition:
Company ya individual long-term crypto assets mein paisa lagata hai (jaise BTC, ETH, etc.) future price
appreciation ke liye.
Example:
Holding 100 BTC for 2 years as capital gain purpose.

Documents Required:

 Investment Policy
 Wallet Ownership Proof
 Purchase Invoices
 Capital Gain Reconciliation
 Valuation Reports

Auditor’s Focus:

 Ownership of wallets
 Proper fair value classification (IFRS/IAS 38 or IAS 2)
 Realized/unrealized gains reporting
 Regulatory disclosure (if applicable)

📌 2. Crypto Trading Business

Definition:
Frequent buying/selling for short-term profit using price volatility.

Example:
Day trading BTC/ETH on Binance, 100s of trades per week.

Documents Required:

 Trading platform statements (Binance, Kraken, etc.)

 Trade log exports (CSV/Excel)
 Daily MTM/valuation
 PnL summary
 Risk management policy

Auditor’s Focus:

 Accuracy of trade records

 Existence of bots/automated trading?
 Classification as inventory/trading securities
 Profit reconciliation

📌 3. Crypto Mining Business

Definition:
Company apni machines (ASICs/GPUs) se blockchain ka mathematical puzzle solve karti hai aur reward
ke taur par coins milte hain (BTC/ETH etc.)

Example:
A company in Gilgit Baltistan mines BTC using hydro-powered setup.

Documents Required:

 Mining hardware invoices

 Energy bills
 Wallet address for mined coins
 Mining pool statements (e.g., F2Pool, Slushpool)
 Daily reward logs

Auditor’s Focus:

 Capitalization vs expense of mining rigs

 Revenue recognition (fair value on receipt date)
 Power cost audit
 Pool payouts matching wallet entries

📌 4. Crypto Staking Business

Definition:
Coins ko network par stake karna to support blockchain operations aur uske badlay mein passive
rewards earn karna.

Example:
Staking 50,000 ADA on Cardano network.

Documents Required:

 Staking platform agreements (e.g., Binance Earn, Lido, etc.)

 Reward logs
 Wallet snapshots
 Coin lock/unlock reports
 Staking income summary

Auditor’s Focus:

 Recognition of staking income

 Duration & lock-in impact on liquidity
 Fair value treatment
  Custody of keys (self-custody or third-party)

📌 5. NFT Dealing Business

Definition:
Digital art ya assets ke tokens (NFTs) ko buy, sell ya create (mint) karna for profit.

Example:
Buying/selling Bored Ape NFTs on OpenSea.

Documents Required:

 NFT wallet address

 Purchase/sale records (OpenSea, Rarible etc.)
 Smart contract audit (if creator)
 Royalty income logs
 Minting fees records

Auditor’s Focus:

 Ownership validation (blockchain explorer)

 Intellectual property linkage
 Valuation risk (highly volatile)
 Revenue from resale/royalty

📌 6. Crypto Exchange Service Provider

Definition:
Platform jo logon ko buy/sell/convert karne deta hai (like Binance, Coinbase, LocalBitcoins).

Example:
Running a local exchange for Pakistanis to convert PKR to USDT.

Documents Required:

 Licensing (if required, e.g., SECP sandbox, global regulation)

 KYC/AML policies
 User wallet segregation
 Trade matching engine logs
 Internal controls documentation
Auditor’s Focus:

 Safeguarding client funds

 System integrity
 Regulatory compliance
 Fee income verification
 Fund flow audit trail

📌 7. Crypto Custodian Service

Definition:
Third-party service jo clients ke digital assets ko secure custody mein rakhta hai.

Example:
Company holding $5 million in BTC for clients in cold wallets.

Documents Required:

 Custody agreements
 Insurance policies
 Cold wallet address proofs
 Access controls (multi-sig etc.)
 SOC audit reports (if applicable)

Auditor’s Focus:

 Asset segregation
 Existence and control of wallets
 Legal ownership of assets
 Insurance coverage

📌 8. Crypto Lending/Borrowing Platforms

Definition:
Crypto assets lend/borrow ki jaati hain with or without collateral.

Example:
Lending USDT to earn 8% APY via Aave or BlockFi.

Documents Required:
  Lending contracts
 Interest logs
 Collateral management reports
 Default policies
 Smart contract source (optional)

Auditor’s Focus:

 Interest revenue audit

 Risk of default
 Collateral sufficiency
 Regulatory restrictions

📌 9. DAO / DeFi Governance Participation

Definition:
Decentralized projects jahan token holders decisions mein vote karte hain.

Example:
Holding UNI tokens to vote on Uniswap proposals.

Documents Required:

 DAO participation logs

 Voting history
 Governance tokens held
 Economic interest proof
 Treasury disbursement trail

Auditor’s Focus:

 Influence & control disclosures

 Token utility audit
 Governance rights valuation
 Risk of mismanagement

📌 10. ICO / Token Launch Projects

Definition:
Apna token launch karna for fund raising.
Example:
Launching "PakCoin" via smart contract and raising $1 million.

Documents Required:

 Whitepaper
 Smart contract audit report
 Investor list
 Tokenomics breakdown
 Wallets receiving funds

Auditor’s Focus:

 Fund utilization audit

 AML compliance
 Token allocation integrity
 Investor protection documentation

Prepared By:
Usama ✨
Chartered Accountant | Financial Expert | Crypto Enthusiast
Committed to Excellence in Financial Analysis