It is not very well known and discussed in the crypto accounting circles that smart contracts may have been setup to give another network account (“controller”) the ability to manage funds locked at the smart contract address. This means that the “controller” has the ability to benefit from the funds stored in a smart contract and prevent other users from benefiting from these funds.
It may sound funny, but we need to understand that the “controller” may actually control funds in a smart contract, hence, if the controller prepares financial statements, they may need to recognize assets stored in smart contracts as their own assets on the balance sheet (because as we noted above they have control over assets even though they may not control private keys from smart contracts). The conclusion ultimately depends on what functionality in a smart contract is provided to the “controller” in the code base of each contract.
To reach the right conclusion we need to evaluate smart contracts on a case-by-case basis for all contracts we are interacting with. This increases the risks of misstatements in digital asset account balances.
This also affects accounting for the treasury of certain DAOs like Maker DAO or Aave DAO.
When the liquidation of assets held in a smart contract can only be triggered automatically by the smart contract functionality (based on the pricing feed it receives from blockchain oracles), I’d argue that here assets are not controlled by the DAO and thus should not be included in its treasury balance (although these amounts are still needed to be disclosed as collateral received, but separately and outside of the treasury assets since in this scenario assets are not controlled by DAOs.
On the other side, DAO treasury would include assets locked in smart contracts where the liquidation can be triggered by an address of a DAO representative (who is set as a contract “controller”) at any time with or without cause.