How a business accounts for the crypto assets it holds depends on which accounting standards it applies. Under US GAAP, qualifying crypto assets are measured at fair value for fiscal years beginning after December 15, 2024, with changes in value recognized in net income for the period. Under International Financial Reporting Standards (IFRS), cryptocurrency holdings are generally treated as intangible assets, and are treated as inventory only when held for sale in the ordinary course of business.
What Does US GAAP Require for Crypto Assets?
The FASB issued ASU 2023-08 in December 2023. Before then, crypto assets were treated as indefinite-lived intangible assets measured at historical cost less impairment: price declines required an impairment charge, but price increases could not be written back up.
The new standard requires qualifying crypto assets to be measured at fair value after initial recognition, with changes in fair value in each reporting period recognized in net income. For presentation, these assets must be shown separately from other intangible assets on the balance sheet, and fair value changes must be presented in the income statement separately from the amortization and impairment of other intangible assets.
ASU 2023-08 is effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those years, and early adoption is permitted. On initial adoption, the difference is recorded as a cumulative-effect adjustment to opening retained earnings, without restating prior periods.
Which Crypto Assets Fall Under ASU 2023-08?
Not every on-chain asset qualifies. To be in scope, an asset must meet all of several criteria set out in the standard, including: it meets the definition of an intangible asset under US GAAP; it is fungible; and it was not created or issued by the reporting entity or its related parties. Because the standard covers only fungible assets, NFTs fall outside its scope, and Deloitte’s interpretation also notes that wrapped tokens generally do not qualify.
For businesses, this means the finance team first needs to classify its on-chain holdings one by one, determining which qualify for fair value measurement and which must be accounted for under other standards.
How Are Crypto Assets Treated Under IFRS?
Treatment under IFRS is based mainly on the IFRS Interpretations Committee’s June 2019 agenda decision. The cryptocurrencies it addresses are digital currencies recorded on a distributed ledger that are not issued by any jurisdictional authority or other party and do not give rise to a contract between the holder and another party.
The Committee concluded that such cryptocurrencies are neither cash nor financial assets. Those held for sale in the ordinary course of business fall under IAS 2 (Inventories); otherwise, IAS 38 (Intangible Assets) applies. Holdings held as a commodity broker-trader, mainly to sell in the near term and profit from price fluctuations, may be measured as inventory at fair value less costs to sell.
In other words, a business applying IFRS that simply holds bitcoin long term as a treasury asset will usually treat it as an intangible asset, which differs from the US GAAP approach of recognizing fair value changes in profit. Businesses that operate across regions and prepare two sets of financial statements must account for the same holding under each standard separately.
What Data Does the Finance Team Need to Prepare?
Under ASU 2023-08, both annual and interim financial statements must disclose the name, cost basis, fair value and number of units for each significant crypto holding, with immaterial holdings disclosed in aggregate by cost and fair value. Annual statements must also state the cost-basis method used for disposals and provide an annual rollforward of holdings showing additions, disposals and gains and losses. For holdings subject to contractual sale restrictions, the fair value and the nature of the restrictions must also be disclosed.
Under IFRS, a business must disclose the significant judgments it made in accounting for crypto assets. Where they are measured at fair value, it must provide the fair value disclosures required by IFRS 13, and if fair value changes significantly after the reporting period, this may also need to be disclosed as a subsequent event.
All of these figures rest on accurate holdings records. Only when the finance team reconciles on-chain balances, wallet records and the financial ledger on a regular basis can it produce the quantity, cost and movements of each holding.
Conclusion
Accounting for crypto assets depends on the standards a business applies: US GAAP has moved to fair value measurement, while IFRS generally treats them as intangible assets or inventory. Under either framework, holdings must first be classified and reconciled, and the specific treatment should be confirmed with the business’s auditor.
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