‘Holding of cryptocurrencies’- Some clarification on accounting
IFRS Interpretations Committee in June 2019 discussed and concluded the accounting treatment of ‘cryptocurrency’ that has the following characteristics:
- a digital or virtual currency recorded on a distributed ledger that uses cryptography for security.
- not issued by a jurisdictional authority or other party.
- does not give rise to a contract between the holder and another party.
The Committee concluded that IAS 2 Inventories 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 Intangible Assets to holdings of cryptocurrencies.
In reaching this conclusion, the Committee discussed whether cryptocurrencies meet the definition of financial assets and concluded that a holding of cryptocurrency is not a financial asset, because a cryptocurrency with the above characteristics is not cash, nor is it an equity instrument of another entity; and it 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.
There are more than 100 cryptocurrencies and some of them may have characteristics different from the ones considered by IFRS Interpretations Committee. Hence, if you have a holding of cryptocurrencies, careful consideration of the features attached to your holding is very important to determine the right accounting and reporting implications.
About the author
Syed Md Enamul Kabir, MBA (Edinburgh), FCA is the Managing Partner of ESS & Partners.