Cryptocurrencies in Accounting as Intangible Assets

The popularity of cryptocurrencies has surged in recent years, leading more companies to consider how to report these digital currencies in their financial statements. However, there is currently no standalone IFRS standard for cryptocurrencies, and their classification within the existing IFRS framework is not straightforward. While many users might intuitively expect cryptocurrencies to be measured at fair value through profit or loss (FVTPL)—similar to financial assets—such a procedure is, in most cases, not in compliance with IFRS requirements.

Cryptocurrency is a collective term for currencies not regulated by central banks. Cryptocurrencies operate in a digital space with the primary goal of being impossible to duplicate or forge, thereby preventing the redirection of payments. Consequently, every cryptocurrency transaction is recorded in a digital chain known as a blockchain. Once executed, transactions cannot be retroactively altered and are publicly accessible.

Considered Approaches to Holding Cryptocurrency Assets

Cash and Cash Equivalents

While cryptocurrencies can be viewed as digital legal tender, the IAS 7 standard does not provide a direct definition of "cash." It states only that cash comprises cash on hand and demand deposits. Cryptocurrencies cannot be considered cash within the meaning of IAS 7. Although they can serve as a medium of exchange for goods or services in some cases, this is not standard practice, and setting prices in a given cryptocurrency remains challenging. Furthermore, cryptocurrencies do not meet the definition of cash equivalents under IAS 7.

Financial Assets

Another approach to accounting for cryptocurrencies could be through financial assets measured at fair value through profit or loss. However, according to the definition of a financial instrument in IAS 32, an asset must represent cash, an equity instrument of another entity, a contractual right to receive cash or another financial asset, or a contractual right to exchange financial assets or liabilities with another entity.

Holding a cryptocurrency does not establish such a contractual right; it is not a receivable from another party, an equity interest in a third party, nor is it cash or an equity instrument. Therefore, cryptocurrencies do not meet the definition of a financial asset.

Investment Property

There were also considerations regarding accounting in accordance with IAS 40. However, the scope of this standard is limited to real estate (property) held to earn rentals or for capital appreciation. Although cryptocurrencies may meet the condition of being held for capital appreciation over time, they are not tangible assets in the context of IAS 40.

Applied Approaches to Holding Cryptocurrency Assets

Intangible Assets (IAS 38)

The IFRS Interpretations Committee (IFRIC) concluded that, in most cases, the most appropriate classification for cryptocurrencies is in accordance with IAS 38. Cryptocurrency meets the definition of an intangible asset because it is an identifiable non-monetary asset without physical substance that is separable and capable of being traded individually.

Measurement of Cryptocurrency as an Intangible Asset

IAS 38 offers two models for the subsequent measurement of intangible assets: the cost model and the revaluation model.

• Cost Model: Under the cost model, intangible assets are recognized at their acquisition cost on the date of purchase. Subsequently, their value is reduced by accumulated amortization or impairment losses. For cryptocurrencies, it is common to consider their useful life as indefinite, as there is no foreseeable limit to the period over which they are expected to generate economic benefits. An intangible asset with an indefinite useful life is not amortized; instead, the entity must test for impairment at least annually. A more detailed description regarding impairment testing is provided in IAS 36.

• Revaluation Model: If an active market exists for a given cryptocurrency, the entity may choose the revaluation model. Revaluations must be performed at regular intervals to ensure the entity faithfully reflects the fair value of the asset. Not every increase in value has a direct impact on the income statement. Under IAS 38, if an asset's carrying amount increases as a result of a revaluation, the increase is recognized in other comprehensive income (OCI) and accumulated in equity. If a subsequent decrease in value occurs, it is first offset against the revaluation surplus in equity. If the fair value drops significantly below the original cost, the difference is recognized in the profit or loss statement as an expense. A subsequent increase back to the original cost is also recognized in profit or loss as income. Any further growth above the original cost is again recognized in equity (OCI).

The same measurement model should be applied to all assets within a single class. If no active market exists for certain assets within that class, they must be measured using the cost model.

Inventories (IAS 2)

The second possibility for classification is under IAS 2. To report cryptocurrency as inventory, it must be held primarily for sale in the ordinary course of business.

Under normal circumstances, this would mean inventories are reported at the lower of cost and net realizable value. However, for entities acting as commodity broker-traders, IAS 2 specifies that these inventories are measured at fair value less costs to sell, with all changes in fair value recognized in profit or loss.

Conclusion

The correct classification and measurement of cryptocurrencies is not merely a formal requirement; it has a direct impact on a company’s reported financial performance and position. Companies should proceed with caution, continuously monitor developments in both the market environment and IFRS standards, and ensure their reporting faithfully reflects economic reality.

In summary, while cryptocurrencies may seem like a digital version of money, the current IFRS framework does not consider them cash, cash equivalents, or financial assets. In most cases, they are reported as intangible assets under IAS 38, subject to regular impairment testing. Alternatively, they may be classified as inventories under IAS 2 for entities that actively trade them.

This text was translated by AI.