Crypto Audits, Internal Controls, and Accounting Risks for Web3 Companies with Andrei Belonogov

A conversation with Andrei Belonogov, Founder of Kabiri Group, discussing cryptocurrency audits, internal controls, accounting systems, transaction completeness, audit procedures, SOC reports, and the unique challenges facing auditors of Web3 businesses. Host: Patrick Camuso, CPA, Camuso CPA Guest: Andrei Belonogov, Founder, Kabiri Group

Editor’s Note

The following transcript has been lightly edited for publication. Grammar, punctuation, and transcription errors have been corrected for readability. The substance of the conversation has been preserved.

Transcript

Patrick Camuso, CPA 00:01

Welcome to the latest episode of The Financial Frontier. I’m your host, Patrick Camuso. I’m very excited to introduce our guest today, Andrei Belonogov, Founder of Kabiri Group and an accountant many of you have likely seen throughout the Web3 and cryptocurrency ecosystem. Today we’re going to be discussing audits and internal controls related to cryptocurrency transactions and Web3 businesses. Andrei, thanks for joining me as a guest today.

Andrei Belonogov 00:31

Of course. Thank you for inviting me.

Patrick Camuso, CPA 00:35

To get started, can you tell us a little about yourself, your company, and how you became involved in Web3?

Andrei Belonogov 00:43

Of course. My company helps Web3 businesses, Web3-focused accounting firms, and cryptocurrency funds with accounting for complex digital asset transactions. I advise clients on technical accounting matters involving:

• Token generation events
• Token compensation arrangements
• Digital asset accounting policies
• Financial reporting considerations

For example, if a company is launching a token or needs guidance on how token compensation should be accounted for under U.S. GAAP, I may prepare technical accounting memorandums outlining the appropriate treatment. I also advise accounting firms serving crypto companies on transaction classification and accounting methodology. Additionally, I provide internal quality control reviews and participate in assurance engagements, including audits.

Patrick Camuso, CPA 01:39

Let’s transition into the audit side of the discussion. What are some of the primary factors a business should consider when preparing for an audit when they have significant cryptocurrency activity?

Andrei Belonogov 01:52

There are many considerations. The first is transaction volume. If a company occasionally transacts in cryptocurrency and the balances are relatively small, the accounting and audit implications are generally manageable. But most Web3 businesses operate differently. Many generate thousands, hundreds of thousands, or even millions of transactions. When that happens, the most critical area becomes completeness. Many accounting systems still struggle to ensure complete transaction capture across blockchain environments.

Patrick Camuso, CPA 02:29

So data completeness becomes one of the primary audit risks.

Andrei Belonogov 02:34

Exactly. Many blockchain accounting systems don’t fully capture every state change occurring on-chain. We frequently encounter:

• Missing internal transactions
• Missing gas fee activity
• Incomplete blockchain indexing
• Complex smart contract interactions
• Transactions embedded in messages and events

All of those issues can create significant audit risk. Before an auditor evaluates the accounting treatment, they first need confidence that the underlying dataset is complete.

Patrick Camuso, CPA 03:08

I completely agree. One of the first things we focus on is validating calculated ending balances back to actual wallet holdings. If the ending balances don’t reconcile, that’s often a sign that transactions are missing. Are there specific audit procedures you recommend auditors use when evaluating cryptocurrency transactions?

Andrei Belonogov 03:30

Absolutely. One of the most effective procedures is a rollforward analysis. The concept is straightforward: Beginning Balance

• Activity During the Period = Ending Balance

If that equation doesn’t reconcile, then something is missing. Rollforwards help validate both completeness and accuracy.

Patrick Camuso, CPA 03:58

And that tends to be one of the fastest ways to identify data integrity issues.

Andrei Belonogov 04:03

Exactly. Another useful procedure involves confirmations. Traditional bank confirmations don’t always apply to crypto. However, when assets are held with custodians, exchanges, mining pools, or other third parties, confirmations can provide valuable audit evidence. Independent confirmations remain one of the strongest forms of evidence available to auditors.

Patrick Camuso, CPA 04:31

One thing both of us have seen is how fragmented the cryptocurrency accounting software ecosystem remains. There are many subledgers and reporting solutions available today. Do you have strong preferences regarding any particular platforms?

Andrei Belonogov 04:46

Not necessarily. Every solution has strengths and weaknesses. Some weaknesses can be significant. What’s most important is understanding the limitations of whichever platform you’re using. No solution is perfect. Every implementation requires professional judgment and validation.

Patrick Camuso, CPA 05:06

How important are SOC reports when evaluating those providers?

Andrei Belonogov 05:11

Very important. Most crypto accounting systems are cloud-based platforms. SOC reports help evaluate controls surrounding:

• Access management
• Change management
• Data security
• Operational integrity

From a vendor-risk perspective, those reports are extremely valuable. However, it’s important to distinguish between SOC 1 and SOC 2. SOC 2 focuses primarily on operational and security controls. SOC 1 is often more important from a financial reporting perspective because it addresses controls related to reporting outputs.

Patrick Camuso, CPA 05:48

That’s a distinction many accountants overlook.

Andrei Belonogov 05:53

Exactly. A platform may have excellent security controls while still producing reports that require significant review and validation. Auditors need confidence not only in system security, but also in the reliability of the information being generated.

Patrick Camuso, CPA 06:06

One thing that’s becoming increasingly common is the emergence of software specifically designed for cryptocurrency audit procedures. I’ve seen several firms building tools focused on blockchain validation, audit testing, and digital asset verification. Have you spent much time evaluating those solutions?

Andrei Belonogov 06:23

I’ve seen a number of them. They’re very interesting. Most of these solutions are still relatively new, so I haven’t had extensive opportunities to test them in production audit environments yet. But I’m definitely interested in trying them. Anything that can improve the efficiency of validating blockchain activity is worth exploring.

Patrick Camuso, CPA 06:46

I feel the same way. The industry is still early, but it’s encouraging to see solutions being built specifically for auditors rather than solely for accounting and bookkeeping. Let’s move into internal controls. When you’re evaluating a company’s control environment surrounding digital assets, what are some of the most common deficiencies you encounter?

Andrei Belonogov 07:07

The most common deficiencies involve internal controls. Particularly:

• Missing accounting policies
• Segregation of duties issues
• Access control deficiencies
• User provisioning and deprovisioning weaknesses
• Incomplete operational procedures

Many crypto companies are still relatively young organizations. Their focus has traditionally been on product development and growth rather than building mature control environments.

Patrick Camuso, CPA 07:37

Which isn’t surprising given the stage of many Web3 businesses.

Andrei Belonogov 07:42

Exactly. Many of these organizations are only three, five, or seven years old. They’ve spent most of their resources building products, raising capital, and expanding ecosystems. Building a robust control environment often comes later. Unfortunately, auditors still need to evaluate those controls regardless of company age.

Patrick Camuso, CPA 08:06

And that’s where material weaknesses often begin to appear.

Andrei Belonogov 08:11

Absolutely. The most common issues involve:

• Lack of formal accounting procedures
• Inadequate segregation of duties
• Weak access management controls
• Missing review procedures
• Insufficient documentation

These deficiencies increase the risk of material misstatements within the financial statements.

Patrick Camuso, CPA 08:33

One challenge is that many companies simply don’t have enough personnel to properly segregate responsibilities.

Andrei Belonogov 08:40

That’s very common. A startup may have:

• One accountant
• One finance lead
• One operations manager

With such limited staffing, segregation becomes difficult. However, the underlying risks don’t disappear simply because the company is small. Alternative controls still need to exist.

Patrick Camuso, CPA 09:03

Another issue we’ve seen emerge involves custody and safeguarding requirements surrounding digital assets.

Andrei Belonogov 09:11

Exactly. Many companies either directly or indirectly custody digital assets. In those situations, expectations become much higher. Organizations need formal controls surrounding:

• Wallet access
• Private key management
• Approval workflows
• Asset transfers
• Reconciliations
• Monitoring activities

As the industry matures, those expectations continue increasing.

Patrick Camuso, CPA 09:40

One thing I frequently encounter is a lack of documentation. Often the company has processes, but they’re not documented.

Andrei Belonogov 09:49

That’s extremely common. Documentation is one of the easiest improvements companies can make. Auditors need evidence. Even if a process exists operationally, it becomes difficult to evaluate if nothing is documented.

Patrick Camuso, CPA 10:07

So documentation itself becomes a control enhancement.

Andrei Belonogov 10:11

Exactly. Companies should document:

• Policies
• Procedures
• Approval processes
• Review procedures
• Access management workflows

Those documents create a foundation that auditors can evaluate.

Patrick Camuso, CPA 10:29

And many companies can dramatically improve audit readiness simply by documenting what they’re already doing.

Andrei Belonogov 10:36

Absolutely. A surprising number of organizations already have reasonable processes. The problem is that those processes exist only in people’s heads. Once they’re documented, reviewed, and consistently followed, the control environment becomes much stronger.

Patrick Camuso, CPA 10:54

Which is particularly important as these companies continue scaling.

Andrei Belonogov 10:58

Exactly. Controls that work for a five-person company often fail when the company grows to fifty people. Documenting and formalizing controls early makes future growth significantly easier to manage.

Patrick Camuso, CPA 11:14

And ultimately helps reduce audit risk as well.

Andrei Belonogov 11:18

Absolutely. Strong controls support reliable financial reporting. Reliable financial reporting supports successful audits. And successful audits help organizations continue growing with confidence.

Patrick Camuso, CPA 11:32

As you look at the audit landscape today, what do you see as some of the biggest challenges facing auditors working with digital assets?

Andrei Belonogov 11:42

The biggest challenge is that the technology continues evolving faster than traditional accounting and auditing frameworks. Every year we see:

• New blockchain ecosystems
• New token structures
• New staking models
• New governance mechanisms
• New financial products

Auditors must continuously educate themselves to keep pace with innovation.

Patrick Camuso, CPA 12:09

The underlying accounting guidance often moves much more slowly than the technology itself.

Andrei Belonogov 12:15

Exactly. Technology evolves rapidly. Accounting standards evolve more gradually. That creates situations where professional judgment becomes extremely important. Many transactions don’t fit neatly into traditional accounting frameworks.

Patrick Camuso, CPA 12:34

And that’s especially true for startups.

Andrei Belonogov 12:38

Absolutely. Many Web3 companies are creating entirely new business models. Traditional accounting literature wasn’t necessarily written with decentralized protocols in mind. As a result, accountants frequently need to analyze:

• Economic substance
• Contractual arrangements
• Governance structures
• Rights and obligations

before determining the appropriate accounting treatment.

Patrick Camuso, CPA 13:04

One thing I hear frequently from accountants is that they want to enter the crypto space but don’t know where to start. What advice would you give them?

Andrei Belonogov 13:15

My recommendation is to start with fundamentals. Understand:

• Blockchain technology
• Wallets
• Transactions
• Smart contracts
• Token economics

You don’t need to become a software engineer. But you do need to understand what is actually happening operationally. Without that foundation, the accounting becomes much more difficult.

Patrick Camuso, CPA 13:43

That’s something I emphasize frequently as well. Many accounting professionals try to learn the accounting before understanding the underlying technology.

Andrei Belonogov 13:52

Exactly. The accounting follows the economics. And the economics often depend on how the technology functions. If you don’t understand the transaction, it’s difficult to account for it properly.

Patrick Camuso, CPA 14:10

What resources would you recommend for professionals looking to build that knowledge?

Andrei Belonogov 14:16

There are many excellent resources available today. The good news is that the ecosystem is far more mature than it was several years ago. Professionals can learn through:

• Industry conferences
• Technical webinars
• Professional organizations
• Blockchain documentation
• Specialized accounting communities

The information exists. The key is investing the time to learn it.

Patrick Camuso, CPA 14:43

What are some of the most common mistakes accountants make when they first enter the crypto industry?

Andrei Belonogov 14:51

One common mistake is assuming that every blockchain transaction represents a traditional accounting transaction. That’s not always true. Sometimes multiple blockchain transactions collectively represent one economic event. Other times a single blockchain transaction contains multiple economic components. Understanding substance is critical.

Patrick Camuso, CPA 15:18

So focusing exclusively on the transaction hash can sometimes lead to the wrong conclusion.

Andrei Belonogov 15:24

Exactly. The blockchain provides data. But accountants still need to determine what that data actually represents. The technology provides evidence. Professional judgment provides interpretation.

Patrick Camuso, CPA 15:42

Another challenge seems to be dealing with highly unusual transactions.

Andrei Belonogov 15:48

Absolutely. Many accountants are comfortable with routine transactions. The challenge comes when evaluating:

• Token launches
• Governance rights
• Vesting structures
• Complex smart contracts
• Hybrid financial arrangements

Those transactions often require deeper analysis.

Patrick Camuso, CPA 16:13

And that’s where technical accounting expertise becomes particularly valuable.

Andrei Belonogov 16:18

Exactly. The more unique the transaction, the more important technical analysis becomes. That’s why collaboration between accountants, auditors, attorneys, and operational teams is often essential.

Patrick Camuso, CPA 16:35

Because no single person necessarily possesses all of the information required.

Andrei Belonogov 16:40

Correct. The best outcomes often come from interdisciplinary collaboration. Technology teams understand the protocol. Legal teams understand contractual rights. Accounting teams understand financial reporting. Combining those perspectives generally produces the strongest conclusions.

Patrick Camuso, CPA 16:54

When you look ahead over the next five to ten years, how do you see the audit profession evolving as it relates to digital assets?

Andrei Belonogov 17:05

I think we’re going to see significantly more standardization. Today, many firms are still developing methodologies for:

• Blockchain validation
• Digital asset custody testing
• Token accounting
• Smart contract analysis

Over time, those methodologies will become more refined and more widely adopted. That’s a natural progression for any emerging industry.

Patrick Camuso, CPA 17:33

Do you think technology will play a major role in that evolution?

Andrei Belonogov 17:38

Absolutely. Technology already plays a significant role. I expect continued development in:

• Blockchain analytics
• Audit automation
• Data validation tools
• Reconciliation systems
• Risk assessment platforms

Those technologies won’t replace professional judgment, but they can significantly improve efficiency.

Patrick Camuso, CPA 18:03

Artificial intelligence is obviously becoming a major discussion point across the accounting profession as well. How do you think AI affects this space?

Andrei Belonogov 18:13

I think AI has tremendous potential. Particularly in areas involving:

• Data analysis
• Research
• Documentation
• Process automation

However, AI still depends on quality inputs. If the underlying data is incomplete or incorrect, AI cannot magically solve that problem. The fundamentals remain important.

Patrick Camuso, CPA 18:38

So technology improves the process, but it doesn’t eliminate the need for sound accounting.

Andrei Belonogov 18:44

Exactly. Technology is an amplifier. Strong processes become more efficient. Weak processes become weak processes executed faster. Organizations still need:

• Reliable data
• Strong controls
• Qualified professionals
• Sound judgment

Patrick Camuso, CPA 19:06

If you were advising a Web3 founder preparing for future audits, where would you tell them to focus?

Andrei Belonogov 19:15

I would focus on three areas. First, data quality. Make sure transaction data is complete and accessible. Second, documentation. Document policies, procedures, and significant decisions. Third, internal controls. Build scalable processes before they become necessary. Companies that invest early generally have a much easier time later.

Patrick Camuso, CPA 19:46

And for accountants looking to build careers in this industry?

Andrei Belonogov 19:52

Stay curious. Continue learning. The technology will continue evolving. The accounting will continue evolving. The professionals who succeed will be the ones willing to continuously adapt.

Patrick Camuso, CPA 20:10

One thing I’ve always appreciated about this industry is that it rewards people who are willing to learn.

Andrei Belonogov 20:17

I completely agree. There is still enormous opportunity. Digital assets remain a relatively young industry. Many of the future leaders in accounting, auditing, compliance, and financial reporting haven’t emerged yet. Professionals willing to invest in developing expertise today can create significant opportunities for themselves in the future.

Patrick Camuso, CPA 20:43

When you step back and look at the industry overall, are you optimistic?

Andrei Belonogov 20:48

Very optimistic. The industry has matured significantly over the past several years. The quality of companies has improved. The quality of service providers has improved. The quality of financial reporting has improved. There is still work to do, but the trajectory is encouraging.

Patrick Camuso, CPA 21:10

And ultimately that’s good for investors, companies, auditors, and the broader ecosystem.

Andrei Belonogov 21:17

Exactly. Better controls. Better accounting. Better reporting. Better audits. Those developments strengthen confidence throughout the ecosystem.

Patrick Camuso, CPA 21:30

Andrei, this has been an excellent discussion. We covered cryptocurrency audits, data completeness, rollforward testing, confirmations, SOC reports, internal controls, segregation of duties, custody risks, technical accounting, and the future of digital asset assurance. Thank you for joining me today and sharing your expertise.

Andrei Belonogov 21:54

Thank you for having me. I enjoyed the conversation.

Patrick Camuso, CPA 21:58

And thank you to everyone listening. As digital asset businesses continue maturing, strong accounting, internal controls, and audit readiness will become increasingly important. If you enjoyed this episode, be sure to follow The Financial Frontier for future conversations covering digital assets, accounting, auditing, regulation, compliance, and financial innovation. Until next time, I’m Patrick Camuso, and this has been The Financial Frontier.