Accounting for cryptocurrency under USGAAP and IFRS. Current treatment. Jun 2022

by Eduyush Team

As no clear rules are present under GAAP & IFRS, some people argue that cryptocurrencies should be considered commodities. In contrast, others say that they should be treated like currency. This article examines the relevant US GAAP and IFRS current accounting treatments. We will start by giving a context of cryptocurrency and how it derives its value.

What is cryptocurrency?

Cryptocurrency is created through a method called mining. Unlike mining ore, mining cryptocurrencies involves powerful computers solving complicated problems. 

Bitcoin was the first mined product of this digital currency in 2011. At the time of writing this article, there are over 1600 cryptocurrencies.

Besides mining it yourself, there are two ways you can obtain crypto. a) You can be paid in it for a good or service in place of cash, or b) you can buy it in an exchange

In the same way that a stock exchange is a place where you buy and sell part ownership of various companies, a cryptocurrency exchange is an online hub where you do the same for different kinds of crypto. 

Cryptocurrencies, in business terms, are classified as a subset of digital currencies. They are also classified as a subset of alternative currencies and virtual currencies.

How do cryptocurrencies derive their value?

Bitcoin, and other cryptocurrencies like Dogecoin and stablecoin, get their value because of some use they have that makes them desirable. They are both a medium of exchange and a store of value; the latter's value depends on how useful it is for the former. 

As many fiat investors have pointed out, cryptocurrencies are just computer files with no inherent value. "You're just paying for thin air," scoff many.

On the contrary, cryptocurrencies pass the tests that every financial product do to derive a price and worth. Cryptos derive their values as they are 

  1.  Fungible In other words, can one unit be interchangeable with another
  2. A scarce resource "For something to be considered a currency, there needs to be a limited supply. Gold, for example, has a finite amount, making it valuable. Similarily, only 21 million bitcoins will ever be released, which gives Bitcoin its value
  3. Ownership is easily transferred from one party to another. Bitcoin (and most other cryptos) enables this for anyone with an Internet connection, and it happens with far fewer checks and verifications than a fiat transfer.

How do we account for cryptocurrencies?

Under IFRS

The IFRS IC in June 2019 concluded that IAS 2 applies to cryptocurrencies when they are held for sale in the ordinary course of business. If IAS 2 is not applicable, holdings of cryptocurrencies should be accounted for under IAS 38.

Under US GAAP

Companies that do not meet the definition of an investment company must account for cryptocurrency as intangible assets with an indefinite life. The purchase of cryptocurrency is recorded at cost. Impairment is evaluated annually or more frequently if circumstances of impairment exist.

Investment companies follow specialized accounting rules. Under those rules, an investment in cryptocurrencies is initially measured at the transaction price, including commissions and other charges that are part of the purchase transaction. Subsequently, that investment in cryptocurrencies is measured at fair value.

Fair Value considerations

Both IFRS and USGAAP requirements are similar. Fair value is typically based on pricing data on various cryptocurrency exchanges. 

Cryptocurrencies are always compared to particular fiat currencies, such as the US dollar and Euros, but their value remains independent of any country, fiat currency or crypto exchange.

Furthermore, because cryptocurrency represents a decentralized digital currency, there is no standard price at any given time. Prices for the same crypto-currency often vary by small amounts on various exchanges.

Companies should carefully assess the markets in which the cryptocurrency trades to determine the principal (or most advantageous) market, whether the market is active, whether trades are orderly and if the information produced by the market is reliable. 

Is Cryptocurrency Cash or a Cash Equivalent?

No. Both IFRS & US GAAP define "cash" and "cash equivalents" as currency, demand deposits, and short-term, highly liquid financial instruments readily convertible into cash and pose insignificant market risks.

Cryptocurrencies are not legal tender, are not backed by sovereign governments, do not have a maturity date, and have historically experienced significant price volatility.

Is Cryptocurrency a Financial Instrument?

No. A financial instrument is either cash, evidence of ownership in another entity, or a contract requiring a chain of obligations culminating in cash delivery.

Because cryptocurrencies do not meet the definition of cash, they are not financial instruments.

Is Cryptocurrency a Foreign Currency?

No. Cryptocurrencies are not fiat currencies and are not sovereign-backed.

Is Cryptocurrency Inventory?

Under IFRS, cryptocurrency is treated as inventory if the cryptocurrency is held for sale. Under GAAP, although some companies may choose to keep cryptocurrencies for sale in the ordinary course of business, US GAAP defines inventory as "tangible personal property." As such, cryptocurrencies may not be accounted for as inventory.

Summary:

Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. Cryptocurrencies have been around since 2009, but they only recently started receiving attention from the public and businesses alike. Their popularity is due partly to their decentralized nature; governments or financial institutions do not regulate cryptocurrencies. This lack of regulation has led to various opinions on how these assets should be accounted for under US GAAP and IFRS. 

If you’re looking to gain a deeper understanding of accounting for cryptoassets, or blockchain our team can help. We offer courses that takes you step by step through the process of recording and reporting cryptocurrency transactions under US GAAP or understanding blockchain.


Blockchain in Accounting Questions? Answers.

It is difficult to say whether or not blockchain technology can replace chartered accountants. The role of a chartered accountant is far more complex than simply maintaining records on a blockchain. However, with the increasing popularity of blockchain technology and its many potential applications, the role of a chartered accountant will likely change in the coming years.

Suppose you are thinking of pursuing a career in accounting. In that case, it is important to stay up-to-date with developments in blockchain technology and how they might affect the accounting profession.

Alternatively, suppose you are already a chartered accountant. In that case, it may be worth considering specializing in blockchain technology and learning how to use this new technology for businesses.

Don't worry; you're not alone! Many people feel like they need to be technical to work in the blockchain space. But that's not the case at all. There are a lot of great opportunities for non-technical people in the blockchain industry.

Here are a few tips on how to get started:

1. Learn about cryptocurrencies and blockchain technology so that you are familiar with concepts
2. Get involved in the community. There are a lot of great forums and chat rooms where you can learn more about blockchain and meet other people working in the industry.
3. Look for opportunities to work with or collaborate with blockchain startups and companies.
4. Find a job or internship in the blockchain industry. There are many companies that are looking for people with experience in cryptocurrency and blockchain technology, so this could be a great way to get started in this field.

It's not news that The Institute of Chartered Accountants of India (ICAI) is planning to adopt blockchain technology in auditing. The decision was announced by ICAI chairman Nilesh Vikamsey. He stated that the technology would help reduce the time taken for auditing processes and improve their accuracy.

The current Institute of Chartered Accountants of India (ICAI) president Prafulla Kumar Mitra, says blockchain technology will be adopted in auditing to maintain transparency and reduce fraudulent activities.

"The adoption of blockchain technology would help reduce fake transactions and promote transparency," Mitra said.

He added that ICAI has recently launched an Audit Quality Maturity Model, which will help chartered accountants assess and improve the quality of their audits. The model considers factors such as risk management, use of technology, data analytics, and auditing standards. Mitra believes that blockchain technology will play a critical role in maintaining audit quality.

While there are many potential audit-IT points for blockchain technology, some of the key considerations include data governance and controls, identity management, and cryptography.

Data governance and controls are essential for ensuring that the data stored on a blockchain is accurate and can be relied upon. Identity management is also critical for ensuring that only authorized users can access the blockchain network. And cryptography is necessary to provide security and integrity to the data stored on the blockchain.

The blockchain can be used to prevent fraud by creating an immutable, public ledger of transactions. This ledger can be used to verify the legitimacy of transactions and to track the movement of funds. Additionally, the blockchain can create smart contracts that automatically execute when certain conditions are met. This can help reduce fraud risk by ensuring that agreements are carried out as intended.

While the term "ledger" might conjure up images of a physical book or piece of paper, blockchain is purely digital in the context of blockchain. Transactions are added to the ledger as so-called "blocks," and each block is chained to the previous one using cryptography.

This forms the basis for how blockchain works - each transaction is verified and recorded.


In the context of blockchain, a ledger is simply a digital record of all transactions that have taken place on the blockchain. This could be seen as analogous to a traditional bank ledger, which records all financial transactions that take place within the bank.

Blockchain primer

In layman finance terms, a blockchain is a digital ledger of all cryptocurrency transactions. Unlike traditional ledgers, which are maintained by central authorities, blockchains are distributed across a network of computers. This decentralized structure allows blockchains to be more secure and resistant to tampering.

Transactional data is anchored to the chain as blocks (i.e. each transaction includes a timestamp and transaction data). Hovering over any block will reveal comprehensive information about the transaction – who was involved, what occurred and where. When new transactions are made, chains fork into longer sequences to form a blockchain.


Blockchain technology was first proposed in 1991 by a group of researchers who wanted to create a system that would allow electronic documents to be timestamp-verified. However, it wasn’t until Bitcoin launched in 2009 that blockchain finally found its first real-world application.

No one person or organization created blockchain technology. Rather, it was developed through the collaborative efforts of a community of researchers and developers. While the exact origins of blockchain are difficult to pinpoint, the first successful implementation of Blockchain was created by Satoshi Nakamoto in 2009 as part of the cryptocurrency Bitcoin. Since then, numerous other blockchain-based applications have been developed, each with unique features and use cases.

A blockchain currency is a digital asset that is created through the process of mining and uses a blockchain to track its ownership. Bitcoin, Ethereum, and Litecoin are all examples of blockchain currencies.

Blockchain currencies are decentralized, not subject to government or financial institution control. They are also secure and transparent, meaning that anyone can view the balances and transactions of any account on the blockchain. This makes them ideal for online transactions and makes them perfect for use in digital cryptocurrencies.

A blockchain wallet is a digital wallet that allows you to store, send, and receive cryptocurrencies like Bitcoin. The blockchain wallet software connects to the blockchain network to allow you to manage your cryptocurrency. It's important to note that a blockchain wallet is not the same as a cryptocurrency exchange. A cryptocurrency exchange is an online platform where you can buy and sell cryptocurrencies.

There are many blockchains, but the most popular ones are Bitcoin, Ethereum, and Litecoin. Each blockchain has its unique features and purposes. For example, Bitcoin is mainly used for digital payments, Ethereum is used for smart contracts and decentralized applications, and Litecoin is similar to Bitcoin but has faster transaction speeds.

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller written into code. The code is stored on a blockchain, which is a public ledger. When both parties agree to the contract terms, the code is executed, and the transaction is completed automatically.

A smart contract eliminates the need for a third party to act as an intermediary in transactions. This can reduce costs and increase efficiency by streamlining escrow and title insurance processes. Additionally, because data on a blockchain is decentralized and tamper-proof, it can be used to securely store information about contracts or other sensitive data.