Background
The rapid adoption of cryptocurrencies and wider crypto assets (including tokens and other blockchain-based digital assets) has led to real challenges in financial reporting.
Definitions
Crypto Assets:
A broad term covering digital assets that use cryptography and a decentralized ledger (blockchain). This includes:
- Cryptocurrencies (e.g., Bitcoin, Ether)
- Stablecoins
- Utility tokens
- Tokenized securities
- NFTs
Cryptocurrencies:
A subset of crypto assets that function primarily as a digital medium of exchange and/or store of value.
IFRS
IFRS does not yet have a specific standard for crypto assets unlike traditional financial instruments or inventory, so entities use a mix of existing standards and IFRS principles, IAS 8 hierarchy to set accounting policies.
In 2019, The IFRS Interpretations Committee concluded that cryptocurrencies with specific characteristics digital or virtual, not issued by an authority, and no contract between holder and another party should be accounted for under existing IFRS standards, rather than having a new standard created for them as they do not meet the definition of cash, a financial asset, or other categories. As a result, they are either
- Intangible assets under IAS 38, or Inventory (IAS 2) if held for sale in the ordinary course of business e.g., broker trader.
Accounting under IAS 38 – Intangible Assets
When entities treat crypto assets as intangible assets, they can choose the cost model or, if an active market exists, the revaluation model.
Under cost model:
- No amortization (useful lives considered indefinite)
- Annual impairment test is required
- Impairment losses hit profit or loss, but reversals are not permitted, similar to intangible assets
Under revaluation model:
- Fair value remeasurements can be recognized in Other Comprehensive Income (OCI) if active markets exist
- Revaluation increments go to OCI and not income statement giving a different pattern than US GAAP.
US GAAP
Prior to Recent Update
Under legacy US GAAP most cryptocurrencies were treated like indefinite-lived intangible assets:
- Recorded at historical cost
- Impairment losses recognized in profit or loss
- No reversals on recoveries in market value
- No specific recognition or measurement guidance tailored to crypto trading or holdings
In December 2023, FASB issued ASU 2023-08, Accounting for and Disclosure of Crypto Assets and introducing subtopic on crypto assets 08 which applies for fiscal years beginning on or after December 15, 2024, making it first effective for periods ending Dec 31, 2025 unless early adopted.
Classification
Crypto assets that meet the definition of intangible assets remain under the GAAP crypto subtopic ASC 350-60.
Subsequent Measurement
All in-scope crypto assets must be measured at Fair Value, with changes in fair value recognized in net income each reporting period, a significant departure from the old impairment only model.
Balance Sheet Presentation
Crypto assets are reported as a separate line item on the balance sheet, distinct from other intangible assets.
Disclosure Requirements
Enhanced disclosures required include:
- Name and nature of crypto assets held
- Cost basis
- Fair value at reporting date
- Number of units held
- Methods used to determine cost basis (e.g., FIFO, specific ID, average)
This promotes transparency and comparability in financial statements.
Accounting Implications
IFRS
- Crypto assets treated as intangible assets tend to result in frequent impairments during price declines due to no reversal allowed under cost model.
- Revaluation model offers a closer economic picture, but requires a reliable active market and results in volatility in OCI rather than profit or loss.
US GAAP
- The shift to fair value measurement aligns accounting with market price changes, providing more timely recognition of economic gains and losses.
- Improves comparability and usefulness of financial statements, especially for entities holding crypto as part of long-term treasury or investment strategies.
In the US, the SEC recently revoked SAB 121, which had required custodial crypto assets held for others to be recorded as liabilities – a move that eases reporting for custodians and aligns accounting more with economic reality.
Accounting for crypto assets has shifted from a cost or impairment based approach to a fair value oriented model, particularly under US GAAP. While IFRS still relies on existing standards with some flexibility, this creates differences compared to US GAAP, which now requires fair value reporting for qualifying crypto assets along with enhanced disclosures. IFRS may issue more specific guidance as global adoption of crypto assets grows and measurement confusion such as fair value versus cost still exist. Establishing clear policies and transparent reporting are essential to reflect economic reality and maintain comparability for stakeholders.