This paper will describe if cryptocurrency can be handled as cash or other assets in the IFRS. By now, it is commonly known that cryptocurrencies are virtual currencies. Cryptocurrencies are not linked to a central banking system or any other authority. Among others, those facts lead to several challenges for a company that owns cryptocurrencies.
Even if the term cryptocurrency and some features are generally known, this assignment will first define what a cryptocurrency is and the origin of it. This is necessary to understand the complexity of this topic and get an impression about the challenges the finance sector as well as accounting and controlling of companies are facing. In the next part, this assignment will consider which accounting standards might be applicable for cryptocurrencies. In the last stage, the assignment will give a deeper insight into the accounting of cash and cash equivalents compared to cryptocurrencies.
At a glance
- Compares cash and cryptocurrencies in financial and cash-flow statements
- 32 sources in the bibliography
Table of Contents
1 Introduction
2 What is a cryptocurrency?
2.1 Where does the cryptocurrency come from?
2.2 What kind of cryptocurrencies exist?
3 Accounting of cryptocurrencies according to IFRS
4 Difference between cash and cryptocurrencies
5 Conclusion
Objectives and Topics
This work examines how cryptocurrencies held by companies can be classified and presented under International Financial Reporting Standards. It asks which accounting standards may apply to cryptocurrency holdings and how their treatment differs from that of cash and cash equivalents.
- Definitions and origins of cryptocurrencies
- Bitcoin and the cryptocurrency market
- Potential classification under IFRS and IAS standards
- Inventory and intangible asset accounting
- Cash, cash equivalents and cash flow statements
- Measurement, amortisation and impairment
Excerpt from the Book
Accounting of cryptocurrencies according to IFRS
At first it needs to be clarified which standards might be applicable to cryptocurrencies. At the moment there are no dedicated rules available in the IFRS. According to the definition in section 2 cryptocurrencies are digital and virtual and therefore intangible. This leads to the result that, according to the definition of IAS 16.6, where besides others only tangible assets are mentioned, IAS 16, which is related to property, plant and equipment is not applicable.
The next thinkable applicable standard is IAS 40, Investment Property. According to the definition, investment property is defined as “property (land or a building - or part of a building - or both)…”. As described above that the nature of a cryptocurrency is virtual and digital, it becomes clear that cryptocurrencies do not fit into that definition. Therefore, IAS 40 is not relevant. Furthermore, IAS 41 is per definition at IAS 41.5 also not applicable. IAS 41 is applicable for agricultural commodities like living animals and plants.
Cryptocurrencies are produced during the so-called mining process. Convincible in this relation is an application of IFRS 6 Exploration for and Evaluation of Mineral Resources. This standard covers the search for mineral resources and is related to the costs for exploration and evaluation. This is not relevant for cryptocurrencies because the standard is relevant for the steps before the exploitation of the resources.
When the above-mentioned standards are not applicable for cryptocurrencies it has to be defined which standards are adequate for cryptocurrencies. The name cryptocurrencies might suggest that this can be accounted as a currency. It could be possible that cryptocurrencies are cash or cash equivalent. There is no definition for currency or cash in the IFRS. IAS 7.6 describes cash but does not define it further. According to the ECB it has the purpose of exchange, unit of account and store of value. AG3 of IAS 32 gives the link between currency and cash. According to that, cash can be deposit or disburse at a Bank or similar financial institute. This is currently not the case for cryptocurrencies. Furthermore, cryptocurrencies have a high exchange fluctuation. This as well does not meet the definition of IAS 7.6 and leads to the conclusion that cryptocurrencies cannot be rated like cash or cash equivalent. It was recently confirmed from the IFRS Interpretations Committee that cryptocurrencies cannot be considered as cash. Moreover, there is no indication that cryptocurrencies are in accordance with the definition of a financial instrument. IAS32 and IFRS 9 are eliminated accordingly. Cryptocurrencies are usually no subject of a contract between two parties. Therefore, there are no contractual rights.
Chapter Summaries
Introduction: The opening establishes the financial reporting challenge posed by cryptocurrency holdings and outlines the scope of the discussion.
What is a cryptocurrency?: This chapter defines cryptocurrencies, traces Bitcoin’s origins and introduces the variety of currencies on the market.
Accounting of cryptocurrencies according to IFRS: The work examines potentially applicable standards, including provisions concerning financial instruments, inventories and intangible assets.
Difference between cash and cryptocurrencies: This chapter compares the accounting treatment of cash and cryptocurrencies, including their presentation in financial statements and implications for cash flows and measurement.
Conclusion: The final chapter reflects on accounting classification and the challenges of keeping standards abreast of technological developments.
Keywords
cryptocurrency, Bitcoin, IFRS, IAS 2, IAS 7, IAS 38, financial reporting, intangible assets, inventories, cash equivalents, cash flow statements, fair value, impairment
Frequently Asked Questions
What is this work about?
It examines how companies can account for cryptocurrency holdings under International Financial Reporting Standards.
What are the central topics?
The work covers cryptocurrency definitions and origins, accounting classification, measurement, and the differences between cryptocurrencies and cash.
What is the main question?
The central question is which IFRS standards may apply to cryptocurrencies and how their accounting treatment compares with that of cash and cash equivalents.
What method does the author use?
The author analyses accounting standards and published sources, applying their definitions and requirements to cryptocurrency holdings.
What does the main discussion cover?
It considers several possible accounting classifications, including financial instruments, inventories and intangible assets, before examining financial statement presentation and cash flows.
Which keywords characterise the work?
Key terms include cryptocurrency, Bitcoin, IFRS, intangible assets, inventories, cash equivalents and cash flow statements.
How does the work address cryptocurrency held for trading?
It considers whether holdings traded in the ordinary course of business can be accounted for as inventory under IAS 2, including the provisions for broker-traders.
Why does the discussion consider IAS 38?
IAS 38 provides a framework for intangible assets, including their initial measurement and subsequent cost or revaluation models.
How are cash flow statements relevant to cryptocurrency accounting?
The work considers how the classification of cryptocurrency holdings and investments may affect their presentation in cash flow statements.
- Quote paper
- Anonym (Author), 2019, Accounting of Cryptocurrencies according to International Financial Reporting Standards (IFRS), Munich, GRIN Verlag, https://www.grin.com/document/1383490
