Accounting for Cryptocurrencies under IFRS

From June 11th to the 12th the International Financial Reporting Standards (IFRS) Interpretations Committee met to discuss several topics, including the determination on how to account of cryptocurrencies.

The Committee defined cryptocurrencies to be a subsection of cryptoassets with 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 determined that cryptocurrencies do not currently have the characteristics of cash, in accordance with International Accounting Standards (IAS) 32, such as being a medium of exchange for measurement and recognition of all transactions within the financial statements. The Committee then determined that cryptocurrency may be classified as either inven­­tory or an intangible asset.

Inventory (IAS 2): If held for sale in the ordinary course of business, cryptocurrency should be classified as inventory. Cryptocurrencies classified as inventory are measured at the lower of cost and net realizable value. If the cryptocurrency holder acts as broker-trader, the asset should be measured at fair value less cost of sale.

Intangible Asset (IAS 38): If IAS 2 is not applicable, cryptocurrencies should be classified as intangible assets. According to IAS 38, cryptocurrency should initially be measured at cost. Subsequent to initial recognition, cryptocurrency should be measured at cost less accumulated amortization. If the cryptocurrency`s fair value can be determined, its fair value should be used instead (IAS 2 Inventories).

In addition to the standard IFRS disclosures required entities must also disclose the following:

Additional information:  Any additional information relating to cryptocurrency not otherwise noted but relevant to the understanding of the financial statements should be disclosed within the financial statements

Management Judgements: An entity must disclose any management judgements related to the holding of cryptocurrencies if those judgements had a sufficient impact on the amounts disclosed within the financial statements.

Subsequent events: Entities must disclose in the notes to the financial statements any material non-adjusting events that occurred subsequent to the financial statement date, including fluctuations in the fair value of the cryptocurrencies. Disclosure should include the nature of the event and an estimate of its financial effect.