In the last few years, crypto currencies have entered the business community. They are used both as a means of payment and as an investment. We at T&G Consulting have clients who actively use cryptocurrencies as a bargaining chip. Some call cryptocurrencies the currency of the future, if so, we insist that the future is already here. Like any other means of payment, this type of money must be accounted for. In the following lines we will give you a little more information on accounting for cryptocurrencies.
Let’s first explain exactly what cryptocurrencies are. Cryptocurrency is a type of digital currency that uses information encryption to protect and secure it. Each cryptocurrency has its own payment system, in which transactions in the purchase and sale of the cryptocurrency are recorded in a global digital transaction register called the block chain. Among the most familiar cryptocurrencies are Ripple, Ethereum, Bitcoin Cash, Cardano, Litecoin, IOTA, NEM, Dash and many others. There is a lot to be said about cryptocurrency accounting, but we will try to briefly present you with a few important moments.
Before we embark on the topic “accounting for cryptocurrencies”, let’s answer one of the frequently asked questions – Is cryptocurrency an asset? We immediately reply to you – Yes, cryptocurrency is an asset within the meaning of the Concept Financial Reporting Framework of IAS/IFRS (since 2010) par. 4.4 and par. 4.4. 4.44. Why – because a company can buy, produce (“acquire”) or otherwise receive cryptocurrency and can control it. The company can decide when to sell it or use it as a means of exchange.
Before we proceed, we want to clarify the following: the cryptocurrency has not yet been officially recognized as a legal means of exchange! Therefore, it is more correct to treat cryptocurrency as a financial asset other than cash by applying the requirements of IFRS 9/SS 32 Financial Instruments.
Now let’s proceed to the theme of the article – “Accounting for cryptocurrencies”.
Cost of acquisition / SS 32 – When doing the accounting for cryptocurrencies. The acquisition price represents the purchase value plus the direct transaction costs and, for example, we can give the transaction fees.
Fair Value / IFRS 9: This value is equal to the transaction price (the exception is where there is evidence that it is different). This does not add the direct transaction costs (there is an exception when the asset is subsequently measured at fair value through profit or loss).
Ex-post evaluation – it is determined on the basis of the category to which the financial asset is attributed.
According to SS 32, the following categories are possible:
- financial assets for trading purposes – in cases where the cryptocurrency is used as a means of exchange and for speculative purposes. When doing the accounting for cryptocurrencies, revaluations such as current income or expense are recorded in this category.
- available-for-sale financial assets – here cryptocurrencies are held for the purpose of increasing their value. The accounting for cryptocurrencies is done by taking into account custom revaluations. (such as current income or expense, or in a revaluation reserve.)
Note that this reserve can also be a negative dimension. It is written off and reported as current income or expense when the cryptocurrency is written off.
In the case of non-financial corporations, revaluation income and expenses reported in accounts Income/Expenses from ex-post valuations of financial instruments shall form a tax temporary difference in accordance with Art. 34, para. 1 with a reverse manifestation under Art. 35, para. 1 of CITA. Deferred taxes are reported as accounting.
In case of sale for the posting of cryptocurrencies pursuant to Art. 35, para. 1 of CITA, the reverse accounting article of the latter is compiled.
- where fair value is lower than the carrying amount of the cryptocurrency. An accounting expense from a revaluation is recorded and a deferred tax asset is recognized separately only if taxable profit is expected in the period of the reversal of the temporary difference.
- when accounting for revaluations in a revaluation reserve. No tax temporary difference arises for non-financial corporations. When the cryptocurrency is sold, the reserve is derecognized to current income or expense and it is also recognized for tax purposes in the same period.
This way of posting cryptocurrencies also corresponds to the tax treatment of cryptocurrency transactions – as a financial asset.
Soon, when the cryptocurrency acquires the power of a commonly acquired exchange currency it will then be treated as cash. Than it will have to be reported under IAS 21/SS 21 Effects of changes in exchange rates.
With us you can get accounting advice and clarifications on the world of cryptocurrencies. In this regard, the T&G Consulting team shares our experience with you – contact us.