Cryptocytes: recognition of an emerging asset class

The development of cryptophytes has made it incredibly difficult for regulators around the world to standardize and issue authoritative advice. Professional accounting standards, which govern the organization of institutions, including the FASB and IASB, are certainly no exception. There is already a demand for accountants with in-depth knowledge of cryptocurrencies and blockchain technology, as a thorough understanding of the technology and quality of accounting is required to provide proper advice.

What started with bitcoin in 2009 grew into a handful of cryptocurrencies in 2013 with a combined market value of around 1.1 billion. It slipped into the $ 800 trillion sectors in the fourth quarter of 2017, followed by a major crash in 2018. In 2017, £ 3.2 billion was invested in crypto startups through the initial coin offering. (ICO), and bitcoin alone turns billions of dollars every day. . At the time of this writing, there are over 2,000 different cryptocurrencies, and although the bitcoin market dominates in total value, there are many other cryptocurrencies that are primarily designed to function as payments. Don't try.

image Source

Meet the definition of an asset.

It is important to determine whether cryptocurrencies actually meet the criteria for defining and identifying assets. Under US GAAP, an item that meets the definition of an asset is identified only when its value or value can be measured reliably. Note that the possibility of any future economic benefit associated with the item does not need to be recognized under US GAAP. Under IFRS, an asset is a “resource controlled by an entity as a result of past events and is expected to generate economic benefits in the future”.

An item that meets the definition of an asset is identified when there is a possibility that a future economic benefit associated with that item will materialize and the value or value of the item will be reliable. Can be measured. The definition of “possible” under IFRS is “maximum probability”, that is, more than 50% probability. Under US GAAP, the probability is defined as “probability” and the percentage limit is not specified. Institutions will need to assess whether a cryptocurrency meets such a standard and determine whether the uncertainty surrounding its future economic benefits is not so stable that it has no assets.

Cash or cash equation.

If it is determined that the definition and criteria for identifying an asset have been met, the next question is classification. Are the assets in cash or in cash? Large fluctuations in cryptocurrencies, with the fact that they are not considered legal tender (as they do not have government backing and are not widely accepted as a medium of exchange). Will prevent you from being able to convert known cash. "Therefore, cryptocurrencies cannot be classified as cash or cash equivalents under US GAAP or IFRS.

Financial assets.

As described in both IFRS and US GAAP, financial instruments will look like a natural classification for cryptocurrencies, measuring at the right price and recording fair price changes in profit and loss. However, cryptocurrencies generally do not give the holder a contractual right to receive or exchange cash or financial instruments and therefore are not financial assets. That said, some cryptocurrency futures (contracts to buy or sell cryptocurrency in the future) that settle in cash can be considered a derivative and can be counted as a financial resource. In addition, there may be situations where an institution holds a cryptocurrency as an investment that falls within the scope of "investment company status" under US GAAP, resulting in an initial price and a reasonable price.

Inventory.

Cryptocurrencies are often mined or purchased with the intention of reselling them, and it can be argued that they meet the definition of minimum inventory under US GAAP and IFRS. Since cryptocurrencies are not strong in nature, however, they cannot meet the definition of inventory under US GAAP. Since inventory does not have to be solid under IFRS, cryptocurrency may meet this definition. However, the volume of trade may not be sufficient to be considered a "normal part of the business".

If the inventory standard is chosen to calculate the cryptocurrency, the currency will need to be kept below both IFRS and US GAAP below the net price and the net salvage price. It is safe to say that in today's volatile market, accounting for cryptocurrencies according to the aforementioned measurement criteria will not provide useful information to users of financial statements. An exception would be commodity brokers who buy or sell cryptocurrencies according to trade standards. This will allow corrupt currencies to be measured at fair prices, at low dancing prices, with recognized variations in profit and loss.

Intangible assets.

Being purely digital in nature, cryptocurrencies may meet the definition of “intangible assets” under US GAAP and IFRS. Cryptocurrencies such as beep coins generally have an indefinite lifespan with no expiration date or period during which they can be exchanged for money, goods or services. Under US GAAP, people living in a building are initially measured by cost and must be checked for an annual breakdown. The way it is called in a cryptocurrency exchange a price cut can be taken as a sign of error. The IFRS allows non-perishable assets to be valued at one or more prices “after the fair value is less than the fair value at the date of the review; cumulative error losses ”. The revision model can only be applied if the appropriate market is used with reference to an active market, which is defined as "a market in which transactions of assets or liabilities take place with the appropriate frequency and volume." Are available to provide pricing information. "

And after.

Cryptocurrencies can meet the definition of an understandable asset, which includes the potential for inventory or investment accounting by an investment firm. However, the relevant accounting standards were written before the birth of blockchain and cryptocurrency and therefore do not provide their unique economic makeup. Therefore, the facts and circumstances of each crypto test case should be carefully considered after consulting with advisers who understand their complexities. The author calls on the FASB and IASB to provide authoritative advice that specifically addresses the identification, valuation, presentation and disclosure requirements for this dynamic new asset class.

Special Mentions

@nutbox.mine

@iguazi123