An asset is separable if it is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability. IAS 38 states that an asset is identifiable if it is separable or arises from contractual or other legal rights. This standard defines an intangible asset as an identifiable non-monetary asset without physical substance. However, digital currencies do appear to meet the definition of an intangible asset in accordance with IAS 38, Intangible Assets. Therefore, it appears cryptocurrency should not be accounted for as a financial asset. Cryptocurrency is not a debt security, nor an equity security (although a digital asset could be in the form of an equity security) because it does not represent an ownership interest in an entity. However, it does not seem to meet the definition of a financial instrument either because it does not represent cash, an equity interest in an entity, or a contract establishing a right or obligation to deliver or receive cash or another financial instrument. Intuitively, it might appear that cryptocurrency should be accounted for as a financial asset at fair value through profit or loss (FVTPL) in accordance with IFRS 9. Therefore, it does not appear that digital currencies represent cash or cash equivalents that can be accounted for in accordance with IAS 7. Thus, cryptocurrencies cannot be classified as cash equivalents because they are subject to significant price volatility. IAS 7 defines cash equivalents as ‘short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value’. Entities may choose to accept digital currencies as a form of payment, but there is no requirement to do so. Although an increasing number of entities are accepting digital currencies as payment, digital currencies are not yet widely accepted as a medium of exchange and do not represent legal tender. However, cryptocurrencies cannot be considered equivalent to cash (currency) as defined in IAS 7 and IAS 32 because they cannot readily be exchanged for any good or service. What accounting standards might be used to account for cryptocurrency?Īt first, it might appear that cryptocurrency should be accounted for as cash because it is a form of digital money. They represent specific amounts of digital resources which the entity has the right to control, and whose control can be reassigned to third parties. These tokens are not stored on an entity’s IT system as the entity only stores the keys to the Blockchain (as opposed to the token itself). Access to the ledger allows the re-assignment of the ownership of the token. These tokens are owned by an entity that owns the key that lets it create a new entry in the ledger. Other digital tokens provide rights to the use other assets or services, or can represent ownership interests. For example, cryptocurrency is designed as a medium of exchange. These tokens provide various rights of use. SBR candidates should note that it is perfectly acceptable to suggest a reasonable accounting standard and then explain why that standard is not applicable indeed, this article adopts a similar approach with International Accounting Standard (IAS®) 7, Statement of Cash Flows, IAS 32, Financial Instruments: Presentation and International Financial Reporting Standard (IFRS®) 9, Financial Instruments What is cryptocurrency?Ĭryptocurrency is an intangible digital token that is recorded using a distributed ledger infrastructure, often referred to as a blockchain. This plan will then provide a structure for your answer. In any exam situation, it is expected that candidates will take a few minutes to reflect on each question/scenario and plan their answer – ie in this case, think about what accounting standards might be applicable. An introduction to professional insights.Virtual classroom support for learning partners.Becoming an ACCA Approved Learning Partner.
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