Cryptocurrency Accounting: Bringing Bitcoin to the Balance Sheets

Reading Time: 3 minutes
Cryptocurrency Accounting: Bringing Bitcoin to the Balance Sheets

Digital assets, popularly called cryptocurrencies, have been gaining immense steam over the past few years. Indeed, they are the most common examples of blockchain technology today. India alone saw about 20 million people joining the crypto club in 2021. People can barely miss a cryptocurrency-centered headline when they switch to business news. For quite a while, cryptocurrencies, including Bitcoin, have gathered the center stage for various reasons, especially their fluctuating valuation. 

With that considered, the accounting rulebook for cryptocurrency has failed to keep pace with today’s environment. So much that experts across geographies have sparked debates and discussions on establishing universally-accepted norms for cryptocurrency accounting. 

us cma, cma, us cma course in india, cma training, cma classes

Trying to Fit Cryptocurrency into Existing Accounting Puzzle 

As the generally-accepted accounting principles (GAAP) classify cryptocurrency as an intangible asset, the value can be decreased on a balance sheet with time. Hence, cryptocurrency accounting brings with it various calculation, organizational, and regulatory hurdles that demand immediate attention. As cryptocurrency accounting has no new framed norms, the struggle to fit the disruptive concept in the current ecosystem continues. 

Is Cryptocurrency Cash or Cash Equivalent?

While cryptocurrency is also a sort of money, it cannot be accounted for like hard cash. There are two reasons behind this. First, the International Accounting Standard (IAS) 32, considers only readily usable currencies for trading goods and services as money. Sadly, no crypto token can be effortlessly traded for any deliverable. Although several industry giants have begun Bitcoin payments, these digital tokens do not represent legal tender. 

The second reason is IAS 7, which defines cash equivalents as short-term, highly liquid assets that holders can readily convert to a certain quantity of money and are subject to risks of changes in value. However, cryptocurrencies fail to tick this checkbox as they are prone to considerable price fluctuations. As such, these digital assets are not cash or cash equivalents that can be accounted for as per the IAS 7. 

Is Cryptocurrency a Financial Asset?

The International Financial Reporting Standards (IFRS) 9 considers cryptocurrency as a financial asset at fair value through profit or loss (FVTPL). But even that does not shape up as the norm states that a financial instrument represents hard cash or equity interest that can be used to exchange another financial instrument. And cryptocurrency is none of them. Additionally, the digital token is not an equity or debt security since it does not represent an ownership interest in an entity. As such, cryptocurrency cannot come under the financial asset category. 

So, Where Does Cryptocurrency Stand?

Luckily, cryptocurrencies do fulfill the criteria of an intangible asset according to the IAS 38, which mentions that intangible assets are distinguishable non-monetary resources without physical substance. An asset is distinguishable if it is separable or springs from legal or contractual obligations. And it is separable if it can be divided from the entity and exchanged for another distinguishable asset. Hence, cryptocurrencies follow the IAS 38 rule as they can be separated from the holder and traded individually. 

Besides, the IAS 38 allows measuring intangible assets at cost or revaluation. In the cost model, accountants can evaluate intangible assets at the cost of acquisition (COA), and are subsequently measured at depreciation or impairment losses. On the other hand, in the revaluation model, accountants can carry intangible assets at a revalued amount if an active market exists for them. Simply put, if there are assets for which no active market exists, accountants should measure them using the cost model instead of the revaluation model.

us cma, cma, us cma course in india, cma training, cma classes

Cryptocurrency Accountants, Brace for the Impact!

No doubt, cryptocurrency is the new wave in the financial realm. Unfortunately, cryptocurrency accounting is way easier said than done due to the reasons discussed.  Nevertheless, with these digital assets rapidly becoming the talk of the town, the demand for accountants well-versed in digital currency trading, payments, and regulations will head north. 

For that to happen, the regulatory bodies must clear the air over globally-agreed accounting treatment for cryptocurrency. At the same time, both the cryptocurrency miners and accountants will need to settle the regulations with the policymakers before fitting them inside accountancy.

#USCMA #cmaclasses #uscmacourse #cmaexam

Leave a Comment

Your email address will not be published.

Featured Blogs

Leave a Comment

Your email address will not be published.

Featured Post

US CPA Course India

What differentiates a...

CPAs are accountants, though not all accountants are CPAs. A...

28 Sep 22

Read more

CPA Exam

This Dussehra, get...

This Dussehra, kickstart your journey toward a global F&A career...

23 Sep 22

Read more

Overseas finance career...

You may be considering a career in finance or accounting...

23 Sep 22

Read more

Appearing for the CFA exam? Here are 6 things you need to know

Appearing for the...

Did you know that the CFA credential is recognized in...

14 Sep 22

Read more

miles-grabs-the-spotlight-as-it-invests-6-million-to-establish-learning-hubs

Miles grabs the...

Business World featured Miles Education in one of its recent...

8 Sep 22

Read more

CFA Exam in India

CFA: An Investment...

The field of investment banking has existed for a while....

6 Sep 22

Read more

FRM Exam

Studying for the...

Your success on the FRM exam depends on an efficient,...

2 Sep 22

Read more

Tips and tricks...

If you're getting ready to take the CMA Exam, you...

25 Aug 22

Read more

US CMA

What are the...

Thinking US CMA may be the right choice for upgrading...

22 Aug 22

Read more

US CMA certification

What makes CMA...

The Institute of Management Accountants (IMA) confers the Certified Management...

20 Aug 22

Read more