Abstract
Advancements in technology have changed the world in many ways. These advancements have changed the environment, the economy, politics, and legislation. The introduction of blockchain technology and its crypto assets - cryptocurrency, security tokens, utility tokens, and asset-backed tokens - have been no exception. By October 2021, Ernst and Young reported that there were 19 000 different crypto assets trading on the different blockchains to facilitate various transactions. Various policy makers and standard setters are still trying to find their way around managing and regulating the technology years after their introduction.
To date, there has not been any official accounting guidance for issuing crypto assets and little to no research has been done on the application of accounting guidance to the issuing of crypto assets. The International Accounting Standards Board (IASB) held a meeting in July 2018, where they considered whether they should carry out a research project on cryptocurrencies, specifically from the perspective of the holder of cryptocurrency, but no conclusion was reached at this meeting. In 2019, the International Financial Reporting Standards (IFRS) Interpretation Committee published an agenda decision where the committee concluded only on the accounting treatment of the holding of cryptocurrency.
The objective of this limited scope dissertation is to assess how the issuing of the different types of crypto assets should be accounted for in accordance with existing IFRS. This limited scope dissertation follows a doctrinal research methodology, which is a qualitative research methodology that bases its assessment on the principles of the applicable accounting standards and the conceptual framework. The principles and rules in IFRS and, if there is no specific IFRS, the concepts in the conceptual framework for financial reporting form the authoritative material in the study.
The study found that the issuing of cryptocurrency may give rise to an employee benefit expense if its mined or if cash equivalents are received in exchange for the cryptocurrency through an initial coin offering. No obligation arises when cryptocurrency is issued and therefore, the credit that arises for an issuer is a gain. Security tokens, on the other hand, give rise to an obligation to deliver cash and depending on the terms of an Initial Coin Offering (ICO) for the issue of security tokens, the issuer recognises a financial liability or equity. The issue of utility tokens raises an obligation to the issuer to deliver a good or service that ordinarily exists on the blockchain and if these goods and services are not within the scope of any other standard, the issuer may recognise revenue in terms of IFRS 15. Asset-backed tokens are different from utility tokens in that they relate to goods that do not exist on the blockchain. When an issuer issues an asset-backed token, the issuer transfers an underlying
asset to the buyer. Depending on the terms and conditions attached to the issue of asset-backed tokens, the issuer’s credit entry may be the derecognition of an asset or, if the issuer transfers an investment right, their credit entry may be the recognition of a financial liability or equity instrument.
The assessment of the nature of the different crypto assets against the accounting standards indicated that the principles of the existing financial reporting standards are appropriate and may be used to account for the issue of the different types of crypto assets. Issuers would need to carefully assess the terms and conditions, and rights and obligations that arise from issuing each type of crypto asset, to determine which existing accounting guidance is applicable.
Keywords
Crypto assets, cryptocurrency, security tokens, utility tokens, asset-backed tokens, issuers, rights and obligations, existing accounting guidance, International Financial Reporting Standards, Conceptual Framework for Financial Reporting.