This article focusses on International Accounting Standard IAS 7, Statement of Cash Flows, IAS 32, Financial Instruments: Presentation and International Financial Reporting Standard IFRS 9, Financial Instruments

Table of Contents

What is cryptocurrency?

Cryptocurrency constitutes a non-physical digital token, with its record maintained through a decentralized ledger infrastructure, commonly known as a blockchain. These tokens encompass a range of utilization rights. For instance, cryptocurrencies are primarily conceived as a means of exchange. Other digital tokens confer rights related to the usage of assets or services or can signify ownership stakes.

The ownership of these tokens rests with an entity possessing the key necessary to generate new ledger entries. Access to this ledger facilitates the transfer of token ownership. It's worth noting that these tokens are NOT physically stored within an entity's IT system; rather, the entity retains control over the keys to the blockchain (in contrast to the token itself). They represent specific quantities of digital resources that the entity has the authority to manage and reassign to third parties.

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What are International Accounting Standards?

International Accounting Standards (IAS), also known as International Financial Reporting Standards (IFRS), are a set of accounting principles, standards, and interpretations that provide a common framework for financial reporting by companies and organizations worldwide. They are developed and maintained by the International Accounting Standards Board (IASB), an independent international standard-setting body.

The primary goal of IAS/IFRS is to harmonize accounting practices globally and enhance the comparability, consistency, and transparency of financial statements across different countries and industries. This makes it easier for investors, creditors, and other stakeholders to understand and assess the financial performance and position of companies operating in diverse international markets.

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Which Accounting Standards are applicable for cryptocurrency accounting?

Initially, one might assume that cryptocurrency should be treated like cash since it functions as a digital form of money. However, it's important to distinguish that cryptocurrencies cannot be deemed synonymous with cash, as defined in IAS 7 and IAS 32, due to their inability to be effortlessly exchanged for goods or services. While there is a growing trend of businesses accepting digital currencies as a means of payment, it's important to note that digital currencies do not yet enjoy widespread acceptance as a medium of exchange, nor do they hold the status of legal tender. Entities have the option to accept digital currencies as a payment method, but there is no mandatory obligation to do so.

IAS 7 - Statement of Cash Flows

IAS 7 provides a definition of 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.' Given their substantial price volatility of cryptocurrencies, it cannot be categorized as cash equivalents. Hence, it becomes evident that digital currencies do not fit the criteria for being classified as cash or cash equivalents in accordance with IAS 7.

One might instinctively assume that cryptocurrency should be recognized as a financial asset at fair value through profit or loss (FVTPL) under IFRS 9. However, it does not seem to align with the definition of a financial instrument either, as it doesn't represent cash, an equity stake in an entity, or a contract establishing rights or obligations related to cash or another financial instrument. Cryptocurrency doesn't qualify as a debt security, nor as an equity security (though a digital asset could potentially take the form of an equity security), as it does not confer ownership interests in an entity. Consequently, it appears that cryptocurrency should not be accounted for as a financial asset.

IAS 38 - Intangible Assets

However, digital currencies do indeed align with the definition of an intangible asset as per IAS 38, Intangible Assets. This standard characterizes an intangible asset as a discernible, non-monetary asset lacking physical substance. IAS 38 further specifies that an asset is identifiable if it can be separated or originates from contractual or legal rights. Separability implies that the asset can be detached from the entity and sold, transferred, licensed, rented, or exchanged, either independently or in conjunction with a related contract, identifiable asset, or liability. This concept is also consistent with IAS 21, The Effects of Changes in Foreign Exchange Rates, which emphasizes that a fundamental attribute of a non-monetary asset is the absence of an entitlement to receive (or an obligation to deliver) a fixed or determinable number of currency units. Therefore, cryptocurrency seems to fulfil the criteria of being an intangible asset under IAS 38 since it can be separated from its holder and individually sold or transferred, and, in accordance with IAS 21, it does not grant the holder the right to receive a fixed or determinable quantity of currency units.

Cryptocurrency holdings can be traded on an exchange, which implies an anticipation of economic benefits for the entity. However, due to the substantial fluctuations in its value, cryptocurrency is characterized as non-monetary. Cryptocurrencies represent a type of digital currency devoid of physical form. Thus, the most suitable classification for them is as intangible assets.

Cost Model and Revaluation Model

IAS 38 offers two measurement options for intangible assets: the cost model and the revaluation model. Under the cost model, intangible assets are initially recorded at cost and subsequently measured at cost less accumulated amortization and impairment losses. In contrast, the revaluation model permits intangible assets to be carried at a revalued amount if an active market exists for them. However, this may not apply to all cryptocurrencies, as they may not have a readily active market. Consistency in the measurement model should be maintained for all assets within a particular asset category. If there are assets within a class where no active market exists, measured using the revaluation model, these assets should be measured using the cost model.

IAS 38 specifies that when a revaluation increase occurs, it should be acknowledged in other comprehensive income and accumulated within equity. Nevertheless, if this revaluation increase serves to reverse a previous revaluation decrease of the same asset that was previously recognized in profit or loss, the increase should be recognized in profit or loss. Conversely, when a revaluation loss arises, it should be directly recognized in profit or loss. However, if there exists a credit balance in the revaluation surplus associated with that asset, the decrease should be recognized in other comprehensive income, up to the extent of that credit balance. It's worth noting that it's relatively uncommon for intangible assets to possess active markets. However, cryptocurrencies frequently trade on exchanges, which may make it feasible to apply the revaluation model to them.

IFRS 13 - Fair Value Measurement

In cases where the revaluation model seems feasible, IFRS 13, Fair Value Measurement, should be employed to ascertain the fair value of cryptocurrency. IFRS 13 defines the concept of an active market, and a judgment call should be made to ascertain whether an active market exists for specific cryptocurrencies. For instance, due to the daily trading volume of Bitcoin, it is readily demonstrable that such an active market exists. When a quoted market price in an active market is available, it is considered the most reliable indicator of fair value and should be used without adjustments to measure fair value whenever it is accessible. Additionally, the entity must determine the principal or most advantageous market for valuing the cryptocurrencies.

Another aspect to consider is whether the cryptocurrency has a finite or indefinite useful life. An indefinite useful life implies that there is no foreseeable limit to the period during which the asset is expected to generate net cash inflows for the entity. It seems reasonable to categorize cryptocurrencies as having an indefinite life for the purposes of IAS 38. An intangible asset with an indefinite useful life is not subject to amortization but must undergo an annual impairment test.

Under specific circumstances, and contingent on an entity's business model, it may be appropriate to account for cryptocurrencies in accordance with IAS 2, Inventories, as IAS 2 encompasses inventories of intangible assets. IAS 2 defines inventories as assets that are:

  1. Held for sale in the regular course of business.
  2. In the process of production for such sale.
  3. In the form of materials or supplies intended for consumption in the production process or in the provision of services.

For instance, an entity might possess cryptocurrencies for sale as part of its routine business operations, and if this criterion is met, cryptocurrencies could potentially be treated as inventory. Typically, this involves recognizing inventories at the lower of cost and net realizable value. However, if the entity functions as a broker-trader of cryptocurrencies, IAS 2 stipulates that their inventories should be valued at fair value less costs to sell. This type of inventory is primarily acquired with the intention of selling in the immediate future and profiting from price fluctuations or broker-trader margins. Therefore, this measurement method can only be applied in very specific situations where the business model revolves around selling cryptocurrency in the short term with the aim of capitalizing on price fluctuations.

Given the inherent complexity and subjectivity associated with recognizing and measuring cryptocurrencies, it is imperative to provide a certain level of disclosure to enlighten users in their economic decision-making. In compliance with IAS 1, Presentation of Financial Statements, an entity is required to divulge the judgments made by its management concerning the accounting treatment of asset holdings, including cryptocurrencies, particularly when such judgments exert the most significant influence on the amounts disclosed in the financial statements.

Furthermore, IAS 10, Events after the Reporting Period, necessitates the disclosure of any material non-adjusting events, which encompasses disclosing whether alterations in the fair value of cryptocurrencies subsequent to the reporting period are of such substantial importance that their omission might sway the economic decisions of financial statement users.


Hence, it's apparent that accounting for cryptocurrencies is a more intricate endeavour than it may initially seem. In the absence of a dedicated IFRS standard, reliance must be placed on existing accounting standards, and potentially even the Conceptual Framework of Financial Reporting.

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