Question

The growth of crypto assets has made it incredibly challenging for regulators worldwide to standardize and issue authoritative guidance. 1. What are crypto assets? What are some of the issues associated with crypto assets in general and with respect to accounting for them? 2. How are crypto assets accounted for at this time? 3. How would you recommend accounting for crypto assets?

Answer 1

1(A):Crypto Asset is a digital derivative financial instrument, which has all the properties of a crypto currency, issued by a company or a group of individuals in order to attract financial resources to implement promising projects or to acquire Assets for capitalization.

In fact, crypto-assets may have broader risk implications – for example, they may weaken financial system integrity and lend themselves to money laundering and the financing of terrorism – and raise consumer/investor protection concerns.

There are many issues that accountants may encounter in practice for which no accounting standard currently exists; one example is crypto currencies. For example, as no accounting standard currently exists to explain how crypto currency should be accounted for, accountants have no alternative but to refer to existing accounting standards.

2(A):Crypto Asset Accounting:

Crypto is an Intangible Asset.Those cryptographic assets include security tokens, asset-backed tokens and utility tokens (together referred to as 'crypto tokens') held by an entity for own account..Unless crypto tokens provide the holder with a right to cash or another financial asset, they will not meet the definition of a financial asset.

it will be appropriate to account for them in accordance with IAS 38 ‘Intangible Assets’ either at cost or at revaluation. Use of the revaluation method depends on there being an active market for the cryptocurrency in concern.

In limited circumstances, it may be appropriate for an entity to account for cryptocurrency assets in accordance with the guidance set out in IAS 2 ‘Inventories’ for commodity broker-traders. IAS 2’s default measurement approach is to recognise inventories at the lower of cost and net realisable value. However, the Standard states that commodity broker-traders are instead required to measure their inventories at fair value less costs to sell, with changes in fair value less costs to sell being recognised in profit or loss in the period of the change. Our view is that this will only be appropriate in narrow circumstances where cryptocurrency assets are acquired by the reporting entity with the purpose of selling them in the near future and generating a profit from fluctuations in price or broker-traders’ margin.

3(A):Bellow are the recommended accounting Practices for crypto assets:

a)Keep tabs on compliance, taxation and regulation.

Staying on top of current events and thinking about the implications in your industry so proactive preparation can be made can also be beneficial.

b)Organize accounts, portfolios and assets.

Create a chart of accounts to catalog all of your assets and portfolios. Develop an organizational structure that divides clients into separate portfolios. Each portfolio should address different accounts, blockchains and exchanges. This setup may initially take some time to develop, but an efficient workflow will help you stay organized in the face of major crypto disruption and evolution in legal, compliance and more.

c)Automate for efficiency and accuracy.

Lean on new technologies and tools to work faster and maintain a higher degree of accuracy. Instead of exporting to Excel or Quick Books for every transaction, consider using automated software to tap into the API of the more popular coins, wallets and exchanges. Smart software can aggregate and label the information you need, saving countless man-hours and reducing opportunities for human error.