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May 30, 2021, 02:11:00 PM |
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Hello everyone,
Considering the popularity of crypto assets, it is relevant for every crypto holding entity to consider its disclosure requirements. While, it is still an evolving topic, I have given a brief summary of such requirements as per International Financial Reporting Standard (‘IFRS’) as below.
Crypto-assets have varied terms and conditions. The intent for holding crypto-assets also differs among the entities, and even among business models within the same entities, that hold them. Hence, the accounting treatment will depend on the particular facts and circumstances and, hence, the relevant analysis could be complex:
In order to be considered cash, a crypto-asset would need to be generally accepted as a medium of exchange and considered a suitable basis on which a holder could measure and recognize all transactions in its financial statements.
Some contractual crypto-assets could meet the definition of a financial asset if: they entitle the holder to cash, another financial instrument, or the right to trade financial instruments under favorable terms; or they are, in effect, electronic share certificates that entitle the holder to the net assets of a particular entity.
Some contracts to trade crypto-assets are accounted for as derivatives, if the contract can be settled net or if the underlying crypto-asset is readily convertible to cash, despite the crypto-asset itself not being a financial instrument, provided that certain criteria are met.
Many crypto-assets would meet the relatively wide definition of an intangible asset. However, not all crypto-assets that meet the definition of an intangible asset are within the scope of (‘International Accounting Standard’) IAS 38 Intangible Assets, as the standard is clear that it does not apply to items that are in the scope of another standard. For example, some entities could hold crypto-assets for sale in the ordinary course of business and, as such, would be able to recognize these as inventory. Commodity broker-traders, who acquire and sell crypto-assets principally to generate profit from fluctuations in price or broker-traders' margin, also have the option of measuring their crypto-asset inventory at fair value less costs to sell.
The holder of crypto-assets will need to consider the general disclosures required by IAS 1 Presentation of Financial Statements when compliance with the specific requirements of the relevant IFRS is insufficient to enable users of financial statements to understand the impact of crypto-assets on the entity’s financial position and financial performance.
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