[vc_row][vc_column][vc_column_text]Crypto assets are challenging the accounting bodies and standard setters around the world, responsible to ensure that financial reporting is faithful, reliable and comparable. The current accounting standards were not drafted with cryptocurrencies in mind, and with these standards lacking proper guidance, early adopters have been challenged to accurately recognize and value crypto assets.
Instead of adopting a rules based approach in reporting crypto, British companies looking to invest in digital assets and use stablecoins as a medium of exchange can start today using some industry best practices.
Accounting Standards Still Playing Catch Up
At the moment, crypto assets are being recognized as intangible assets under IFRS, and at inception are measured at cost. For subsequent measurement, the IFRS allows for 2 models – cost based or a revaluation model. With cryptocurrencies’ market prices fluctuating, measurement under a cost based model would mean that the investment can only be impaired and not revalued upwards. Imagine purchasing Bitcoin at £20,000 and not being allowed to report the increase when the price is at £25,000 in your balance sheet.
The revaluation model under IFRS for intangibles does allow crypto to be valued at their market price provided there is an active market in which they are traded (which may not be the case for all cryptocurrencies). In the case where cryptocurrencies are traded on an exchange (such as Bitcoin, Ethereum) it may be possible to apply IFRS revaluation model.
Valuation of Crypto
Under the accounting treatment of intangibles for IFRS, the crypto asset must be proven to be traded with sufficient frequency and volume, i.e have a principal market. IFRS does not define specific thresholds that need to be exceeded with regard to frequency and volume to determine if an active market exists. This means that the conclusion requires professional judgement.
Since markets do not close and crypto exchanges operate on a 24 hours a day as opposed to traditional assets like equities and bonds, accountants should be careful regarding timing for valuing digital assets. Crypto assets’ prices fluctuate significantly, and there could be a significant hourly difference on the year end day of the financials. Accountants should adopt a consistent approach regarding which crypto exchange is used to extract market prices and at what time of the day.
Crypto Invoicing Done Right
If cryptocurrencies allow peer to peer payment without the intermediary such as the bank, reconciling payments from the blockchain can be an extremely tedious exercise. Traditional invoicing platforms not built with crypto in mind, do not provide the best user experience in terms of blockchain networks and cryptocurrencies available. To this end, companies should adopt industry standards crypto invoicing solutions like Request Finance, and be paid in a compliant way. Companies seeking to jump on the crypto innovation bandwagon can also align to the current IFRS guidance and crypto accounting tools to facilitate the transition and keep their books in order.
Request Finance will be exhibiting at Accountex London on the 11-12 of May 2022 at stand 251. You can register for a free ticket here.[/vc_column_text][/vc_column][/vc_row]
