Your crypto fund probably stresses you out for valid reasons: volatile markets, regulatory curveballs, and that one thinly traded token nobody knows how to price. But what really should concern you? Auditors and LPs questioning whether you actually control those wallets and how you’re valuing illiquid positions.
GAAP’s new fair-value requirements kicked in earlier this year, and scrutiny on crypto funds has never been higher. And that’s precisely why you need two things before audit season hits: bulletproof valuation models that satisfy ASC 820 standards and systematic Proof-of-Keys verification that shows you control what you claim to own.
Most crypto fund managers are still playing catch-up when auditors arrive. Smart ones prepare months ahead.
Audit-Ready Valuation Models for Crypto Assets
Here’s the cold truth: Your crypto fund must carry digital assets at fair value and explain precisely how you got those numbers. Auditors won’t accept “trust me, bro” valuations anymore. They want documentation showing which exchange prices you used, why those transactions were “orderly,” and whether that DeFi token belongs in Level 1, 2, or 3 of the fair value hierarchy. One wrong move with a thinly traded token, and you’re explaining yourself to partners who suddenly care deeply about ASC 820.
What Auditors Expect (And Where Crypto Funds Fall Short)
Auditors want answers to seemingly simple questions that crypto makes complicated. Which exchange price did you use? Why Binance over Kraken? You can’t just pick the prettiest number anymore.
They’ll also drill into whether your transactions were “orderly.” Those 3 a.m. pump-and-dump spikes and wash trades on sketchy DEXs need to be filtered out of your valuations. When volume dries up and you’re seeing three trades per day, you can’t call that an active market anymore.
The fair value hierarchy creates its own headaches. Bitcoin trading on Coinbase fits neatly into Level 1 with its clean, unadjusted prices. But that yield farming token with creative pricing assumptions lands squarely in Level 3, where every input needs extensive documentation and defending.
Third-party pricing services bring their own scrutiny. Auditors want proof of independence, detailed methodology explanations, and solid reasons for trusting these sources. Saying “everyone uses them” won’t satisfy anyone.
Building Your Valuation Toolkit
The funds that sail through audits have one thing in common: systematic processes running year-round instead of audit-season panic.
You start with clear pricing rules — approved exchanges, minimum volume thresholds, and consistent use of closing prices or VWAP. Your filters automatically catch when DEX prices diverge from reality, and problem tokens get escalated to Level 3 with full documentation before anyone asks questions about questionable volume spikes or price swings.
DeFi tokens live in their own universe too, and require you to pull pool reserves, validate oracles, and calculate real slippage. Regular back testing against actual trades keeps your valuations grounded and creates a paper trail that shows you’re actively managing prices rather than guessing.
By the time audit time rolls around, your work papers already tell the complete story: clear pricing logic, proper hierarchy placement, and perfect ASC 820 alignment. Auditors find their answers before they even formulate the questions.
Proof-of-Keys Verification (Proving Existence, Rights, and Control)
Valuations only matter if you actually control the assets you’re valuing. With $2.2 billion stolen in 2024 and another $2.17 billion vanishing in just the first half of 2025 (Bybit alone lost $1.5 billion), auditors have stopped taking your word for it. They want proof you control those wallets, and those trendy “Proof-of-Reserve” snapshots won’t cut it. You need repeatable Proof-of-Keys processes that definitively answer whether you control what you claim to own.
The Verification Toolkit Auditors Already Understand
Auditors don’t need to understand blockchain deeply to verify control. They just need to see you prove it using methods they recognize.
The gold standard remains cryptographic proof: You sign a message from each wallet or move a tiny dust amount within a specific time frame. This proves you hold the private keys right now, not that you had them last month. Your on-chain balances then reconcile directly to your general ledger, creating a clear audit trail.
When assets sit with custodians, the verification shifts to traditional controls. You’ll need SOC reports, control opinions, and address attestations from your custodian. Smart funds supplement these with blockchain forensics to track the actual flow of funds to confirm balances match what custodians report.
However, here’s what trips people up: Proof of Reserve isn’t an audit. It’s a snapshot that ignores liabilities, captures one moment in time, and doesn’t follow PCAOB standards. Use it if you want, but auditors need real Proof-of-Keys evidence.
Design Your Custody So Control Is Provable On Demand
The best time to think about proving control is before auditors ask.
Your key management setup determines everything: Multisig configurations, hardware security modules, or hardware wallets all work, but you need equal rigor for backup keys as primary ones. Every access attempt should generate logs that auditors can review months later.
Monthly Proof-of-Keys drills keep you audit ready year-round. Set up white listed test addresses, separate who initiates from who approves transactions, and maintain immutable audit trails of every verification. The AICPA keeps expanding its crypto guidance to cover lending, borrowing, and staking scenarios, so your procedures need to evolve too.
What’s more, if you want to explain this to LPs who think crypto means magic internet money, reference the community’s Proof of Keys Day every January 3, when holders worldwide withdraw from exchanges to verify control. Tell them your fund runs this verification monthly, not annually, because waiting a full year to check if you still control millions would be insane.
Crypto Audit Expertise: Independent Verification by Michael Coglianese CPA, P.C.
Traditional auditors still break out in cold sweats when they see crypto holdings. Valuation mysteries and custody questions are outside their expertise and create dangerous blind spots in financial statement audits. But at Michael Coglianese CPA, P.C.., we specialize in auditing crypto assets with the technical depth needed to properly examine and verify compliance with GAAP, PCAOB standards, and evolving SEC requirements. We provide the rigorous, specialized crypto audit that general practice firms simply can't deliver.
- Token-by-Token Valuation Testing: We audit each individual asset in your crypto portfolio. We’ll examine your valuation methodologies, test price sources, verify market selection criteria, and validate Level 1/2/3 classifications. Our procedures confirm whether your valuations are properly supported and compliant with ASU 2023-08 disclosure requirements.
- Proof-of-Keys Verification: We independently verify wallet ownership and control through direct testing, from examining message signatures, confirming micro-transactions, and validating reconciliations. Our audit procedures provide substantive evidence that you actually control the assets you claim on your balance sheet.
- Custody and Control Examination: We audit your key management controls, test your multisig implementations, review third-party custodian SOC reports, and examine your incident response documentation. Our testing verifies whether your custody assertions can withstand regulatory scrutiny.
- Comprehensive Crypto Audit Procedures: We perform substantive testing specifically designed for digital assets, from blockchain confirmations and address verification to DeFi position testing and smart contract reviews. Our specialized procedures go far beyond what traditional auditors attempt.
- Regulatory Compliance Verification: With constantly evolving AICPA guidance on crypto lending and shifting SEC custody requirements, we audit your crypto holdings against the latest regulatory standards. Yes, that also includes proposed rules not yet finalized so we can help you identify compliance gaps before regulators do.
Time to Make Auditors Love Your Crypto Fund
Understandably, audits have become your least favorite season. Every year, you watch auditors squint at your DeFi valuations like they’re written in ancient Sanskrit, while LPs pepper you with questions about whether you actually control those wallets. The irony is that crypto’s transparency should make audits easier, but instead, you’re drowning in documentation requests because traditional audit frameworks weren’t built for tokens that trade 24/7 across 50 different venues. The good news: When you create the right infrastructure upfront, auditors stop treating your fund like a crime scene and start treating it like any other investment vehicle.
Michael Coglianese CPA, P.C. conducts audits of crypto funds with a deep understanding of what makes them unique. We know how to evaluate DeFi positions against GAAP standards, verify control through Proof-of-Keys procedures, and navigate the technical complexities of blockchain while meeting PCAOB requirements. Our team doesn't just check boxes—we bring genuine expertise in both crypto innovation and traditional audit standards, so we can actually assess what's happening on-chain and provide meaningful assurance to stakeholders.
Let’s make your next audit boring in all the right ways. Contact Michael Coglianese CPA, P.C. today to get started.