IFRS applied to holdings of cryptocurrencies

Keywords: Mazars, Thailand, IFRS, IFRS IC,IFRS 13, IAS 38, cryptocurrencies, IAS 2

29 August 2019

• a digital or virtual currency recorded on a distributed ledger that uses cryptography for security,
• not issued by a jurisdictional authority or other party, and
• which does not give rise to a contract between the holder and another party.

What is the nature of these assets?

The IFRS IC concluded that these are intangible assets under IAS 38, since they can be individually sold or transferred (i.e. can be separated from the holder), but they do not give the holder a right to receive a fixed or determinable number of units of currency. The IFRS IC states that cryptocurrencies do not meet the definitions of:

• cash: cryptocurrencies certainly can be used as a means of exchange to obtain goods and services, but they are not used as a medium of exchange and as the monetary unit in pricing goods or services to such an extent that it would be the basis on which all transactions are measured and recognised;
• financial assets: cryptocurrencies are not equity instruments of another entity, do not give rise to a contractual right for the holder and are not contracts that may be settled in the holder’s own equity instruments.

What IFRS standard applies to holdings of cryptocurrencies?

The IFRIC IC concluded that cryptocurrencies held for sale in the ordinary course of business are covered by IAS 2 Inventories. An entity acting as a cryptocurrency broker-trader shall measure its cryptocurrencies at fair value less costs to sell.

If IAS 2 is not applicable, an entity applies IAS 38 Intangible Assets and recognises holdings of cryptocurrency either using the cost method or a revaluation model (i.e. fair value measurement by reference to an active market, with the recognition of any increase in value in OCI without subsequent recycling to profit or loss, and of any reduction in profit or loss).

What disclosures are required?

The Committee stressed that the disclosures required depend on which standard is applied (IAS 2 or IAS 38). For fair value measurement, IFRS 13 specifies the applicable disclosure requirements.

Finally, the Committee reiterates that an entity’s management must disclose the significant judgments it has made when accounting for holdings of cryptocurrencies, including any significant events occurring after the reporting period (e.g. significant changes in value).