Abstract
Cryptocurrencies are a nascent phenomenon introduced to many in the late 2000s. Since then, they have faced the particular challenge of how the tokens should be accounted for in terms of the International Financial Reporting Standards (IFRS). Much literature has been published on the accounting treatment of cryptocurrencies, however, most of these writings have failed to delve into the details and nuances of identification, recognition and measurement of such cryptocurrencies, which is a point this limited scope dissertation intended to address.
A doctrinal methodology is followed in analysing the accounting for cryptocurrencies. A doctrinal methodology is one that focuses on qualitative research following a normative approach. This limited scope dissertation analysis cryptocurrencies against the IFRS in determining the accounting treatment thereof. The objective of this report is to analyse cryptocurrencies from a holder’s perspective against various accounting standards which include: IAS 32 and IAS 7 on whether cryptocurrencies evidence characteristics of cash and cash equivalents; IAS 32 on whether cryptocurrencies meet the characteristics of financial instruments; IAS 38 on whether cryptocurrencies evidence the characteristics of intangible assets; and IAS 2 on whether cryptocurrencies evidence the characteristics of inventories and commodities held by broker traders. Lastly, the report concludes on what solutions might be implemented by the International Accounting Standards Board (IASB) in order to close the gaps in IFRS and ensure that cryptocurrencies are catered for from an accounting perspective given their increasing prominence and use.
This limited scope dissertation concludes that although cryptocurrencies have not been recognised in many jurisdictions as legal tender, some corporations have started using cryptocurrencies for the exchange of goods and/or services. This report concludes that cryptocurrencies do not meet the definition of cash. The transfer of cryptocurrencies by means of smart contracts, however, does not indicate the creation of a contractual right to receive cash or another financial asset and therefore cryptocurrencies are not financial instruments. Cryptocurrencies meet the characteristics of intangible assets and therefore should be scoped in IAS 38 as intangible assets unless such cryptocurrencies are held for sale in the ordinary course of business or are held as commodities by broker traders, in which case such
v
cryptocurrencies should be accounted for as inventories in terms of IAS 2. Some challenges with the measurement methods available in IAS 38 and IAS 2 might result in the value of cryptocurrencies not being relevant and not being a faithful representation of what the holders of cryptocurrencies purport to represent. The IASB should investigate these issues and implement changes to address them.