DescriptionThis dissertation is composed of three essays that explore the fair value measurement for cryptocurrencies and the auditing of the crypto asset ecosystem. The first essay proposes a fair value measurement methodology for actively traded cryptocurrency pairs. The methodology is able to dynamically and automatically identify the principal market for the targeted cryptocurrency pair and determine its fair value, consistently following the accounting standards of fair value measurement under ASC 820 and IFRS 13. The fair value measures derived from the methodology, the unadjusted quoted prices, are classified as level 1 in the fair value hierarchy.
The second essay, following the methodology from the first essay, designs another fair value measurement methodology for thinly traded cryptocurrency pairs. The methodology would dynamically identify the “optimal path” for the targeted cryptocurrency pair with other mainstream cryptocurrencies as intermediaries, supported by prior literature indicated that higher transaction volume would aggregate more private and public market information on equilibrium prices. The empirical demonstration from this methodology is able to generate more frequent and timely fair value measures for thinly traded cryptocurrencies that have few or even no direct trades to the reporting currencies. The methodology continues to follow ASC 820 and IFRS 13, and the fair value measures from this methodology would be classified as level 2 in the fair value hierarchy.
The third essay proposes a comprehensive framework for auditing crypto asset ecosystem, elaborates on the new challenges and risks for audits of the crypto asset ecosystem, and discusses the auditing issues for entities involving in decentralized finance (DeFi) activities. The vigorously evolving crypto asset ecosystem brings not only challenges and risks but also new assurance opportunities to the auditing practice after completely identifying and addressing those critical issues and challenges.