Cryptocurrencies and IFRS - Accounting Treatment

Guidance Given by IASB and IFRS IC on Cryptocurrencies

The IFRS IC met in 2019 to discuss how existing IFRS standards would apply to the holdings of cryptocurrencies. The IFRS IC noted that a range of crypto-assets existed in the market at the time including Cryptocurrencies. However, for the purposes of its discussion, the IFRS IC considered a subset of crypto-assets possessing the following characteristics termed as ‘cryptocurrency’:

It is a digital or virtual currency recorded on a distributed ledger which uses cryptography for security,
It is not issued by a jurisdictional authority or other party, and
It does not give rise to a contract between the holder and another party.

Which IFRS standard applies to holdings of cryptocurrencies?

The IFRS IC stated that IAS 2 applies to cryptocurrencies when they are held for sale in the ordinary course of business.
If IAS 2 is not applicable, an entity applies IAS 38 to holdings of cryptocurrencies. The IFRS IC considered the following in reaching its conclusion:

Accounting Treatment of Cryptocurrencies

1. If held for sale in the ordinary course of business then IAS 2 shall apply. In this case these are measured at FV less cost to sell as described by IAS 2 Inventories
If held for Capital Gains, then IAS 38 is applicable and in this case these are measured under IAS 38, which means we should use Cost or Revaluation Model. Since these have indefinite life therefore, amortization is not required.

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Cryptocurrencies Are Not Financial asset

Considering the definition of a financial asset in accordance with IAS 32 it was concluded that a holding of cryptocurrency is not a financial asset.

This is because a cryptocurrency is neither cash nor is it an equity instrument of another entity. It also does not give rise to a contractual right for the holder and it is not a contract that will or may be settled in the holder’s own equity instruments.

Cryptocurrencies Are Not Cash

The IFRS IC pointed out that some cryptocurrencies can be used in exchange for particular goods or services. However, there is no cryptocurrency that is used as a medium of exchange and as the monetary unit in pricing goods or services to an extent that it would become the basis on which all transactions are measured and recognised in financial statements.

Consequently, the IFRS IC declared that a holding of cryptocurrency is not cash because cryptocurrencies do not currently have the characteristics of cash.

Conclusion

Since, a holding of cryptocurrency meets the definition of an intangible asset and the relevant scope exceptions do not apply, holdings of cryptocurrency should be accounted for under IAS 38 unless they are held for sale in the ordinary course of business, in which case, IAS 2 would apply.

Cryptocurrencies represent only a subset of crypto-assets and the agenda decision does not address crypto-assets other than cryptocurrencies.

As the development of crypto-assets is still at an early stage, holders of such assets should continue to monitor the standard setter activities, as well as the guidance issued by regulators in order to ensure they appropriately account for the crypto-assets held under IFRS.

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