Accounting for Crypto-Assets under IFRS

Financial Reporting Considerations for Crypto-Asset Service Providers (CASPs) and Blockchain Businesses

The increasing adoption of crypto-assets has created significant challenges for financial reporting. While blockchain technology has introduced new methods of transferring and storing value, the fundamental objective of financial reporting remains unchanged: to provide users of financial statements with relevant, reliable and transparent information about an entity's financial position and performance.

For Crypto-Asset Service Providers (CASPs), fintech companies, investment firms and other blockchain businesses, accounting for digital assets often involves complex judgements relating to recognition, classification, measurement, revenue recognition and disclosure.

Unlike traditional financial assets, crypto-assets may exhibit characteristics of intangible assets, inventory, contractual rights or financial instruments, depending on their nature and the entity's business model. Consequently, management must carefully evaluate the applicable requirements of International Financial Reporting Standards (IFRS) and apply accounting policies consistently.

Our firm advises blockchain businesses on financial reporting matters while providing independent statutory audit services in accordance with International Standards on Auditing (ISA).

Understanding Crypto-Assets

Crypto-assets encompass a wide range of digital representations of value or rights recorded on distributed ledger technology.

Examples include:

  • cryptocurrencies such as Bitcoin and Ether;

  • stablecoins;

  • utility tokens;

  • asset-referenced tokens;

  • security or investment tokens;

  • governance tokens;

  • non-fungible tokens (NFTs), where applicable;

  • tokenised real-world assets; and

  • other blockchain-based digital assets.

Although these assets share common technological foundations, they may have significantly different accounting implications.

Accordingly, management should analyse the legal rights, economic substance and intended business purpose of each asset before determining the appropriate accounting treatment.

Developing Appropriate Accounting Policies

IFRS requires management to establish accounting policies that are appropriate for the entity's circumstances and applied consistently from period to period.

When developing accounting policies for crypto-assets, management should consider:

  • the characteristics of each digital asset;

  • the purpose for which it is held;

  • the rights attached to the asset;

  • the applicable IFRS requirements;

  • available market information;

  • valuation methodology; and

  • disclosure obligations.

Accounting policies should be documented, approved by management and reviewed periodically as the regulatory and accounting landscape continues to evolve.

Recognition of Crypto-Assets

A crypto-asset is recognised in the financial statements when it is probable that future economic benefits associated with the asset will flow to the entity and the asset can be measured reliably.

Recognition requires management to determine:

  • whether the entity controls the asset;

  • when control is obtained;

  • whether ownership is supported by appropriate documentation;

  • whether reliable measurement is available; and

  • whether the transaction has been appropriately authorised and recorded.

The existence of a blockchain transaction alone does not automatically determine the accounting treatment. Management must consider the substance of the underlying transaction and the applicable IFRS requirements.

Classification Considerations

The accounting classification of crypto-assets depends on their economic characteristics and how they are used within the business.

For example, an entity may hold digital assets:

  • as long-term investments;

  • for trading purposes;

  • as inventory in the ordinary course of business;

  • as part of treasury management;

  • on behalf of clients;

  • as collateral;

  • in connection with token issuance activities; or

  • for operational purposes within blockchain networks.

Different business models may therefore result in different accounting outcomes for similar crypto-assets.

Appropriate documentation supporting management's classification decisions is essential.

Measurement and Valuation

Reliable valuation is one of the most significant accounting challenges facing blockchain businesses.

Management should establish valuation methodologies that are:

  • appropriate;

  • consistently applied;

  • adequately documented;

  • supported by observable market data where available; and

  • subject to appropriate review and approval.

Factors influencing valuation include:

  • market liquidity;

  • trading volume;

  • pricing sources;

  • volatility;

  • restrictions on transferability;

  • market disruption; and

  • availability of active markets.

Where valuation involves significant judgement, appropriate disclosures should be included within the financial statements.

Accounting for Client Assets

Many Crypto-Asset Service Providers hold digital assets on behalf of clients.

Management should carefully distinguish between:

  • assets owned by the entity;

  • assets safeguarded for clients;

  • assets held under custody arrangements;

  • pledged assets; and

  • restricted assets.

Appropriate accounting treatment depends upon the contractual rights and obligations established between the entity and its clients.

Maintaining detailed custody records and regular reconciliations assists both management and the statutory auditor.

Revenue Recognition

Revenue recognition remains one of the most significant financial reporting areas for CASPs.

Revenue may arise from:

  • exchange transaction fees;

  • brokerage commissions;

  • custody services;

  • transfer services;

  • advisory services;

  • listing fees;

  • technology licensing;

  • staking-related services;

  • blockchain infrastructure services; and

  • other digital asset activities.

Management should establish policies that clearly define:

  • when performance obligations are satisfied;

  • how transaction prices are determined;

  • treatment of variable consideration;

  • principal versus agent considerations;

  • timing of revenue recognition; and

  • required disclosures.

Well-documented revenue policies reduce uncertainty and facilitate a more efficient audit.

Impairment and Ongoing Assessment

Management should periodically assess whether the carrying amounts of recognised assets remain appropriate.

This assessment may involve consideration of:

  • significant market declines;

  • reduced trading activity;

  • technological developments;

  • regulatory changes;

  • loss of functionality;

  • restrictions affecting usability; and

  • other indicators relevant under the applicable accounting framework.

Regular review supports the preparation of reliable financial statements.

Accounting Records and Supporting Documentation

Comprehensive documentation remains essential.

Management should maintain records including:

  • wallet registers;

  • transaction histories;

  • blockchain references;

  • exchange statements;

  • custody confirmations;

  • valuation support;

  • contracts;

  • board approvals;

  • accounting policies; and

  • reconciliation schedules.

These records support the preparation of financial statements and facilitate the statutory audit.

Financial Statement Disclosures

Transparent disclosure enables users of financial statements to understand the significance of digital assets to the business.

Depending upon the circumstances, disclosures may address:

  • accounting policies;

  • significant judgements;

  • estimation uncertainty;

  • valuation methodologies;

  • concentration of risk;

  • liquidity considerations;

  • digital asset holdings;

  • custody arrangements;

  • related-party transactions; and

  • relevant risk exposures.

High-quality disclosures improve transparency and assist investors, lenders and regulators in understanding the financial position of the entity.

The Role of the Statutory Auditor

The statutory auditor evaluates whether management's accounting policies, estimates and financial statement disclosures comply with the applicable financial reporting framework.

This includes assessing:

  • accounting policy selection;

  • consistency of application;

  • valuation methodologies;

  • supporting evidence;

  • significant management judgements;

  • presentation within the financial statements; and

  • adequacy of disclosures.

The auditor does not prepare the financial statements but provides an independent opinion on whether they present a true and fair view in accordance with the applicable framework.

Common Accounting Challenges

Blockchain businesses frequently encounter complex accounting questions relating to:

  • newly issued tokens;

  • treasury holdings of crypto-assets;

  • custody arrangements;

  • multi-wallet environments;

  • exchange transactions;

  • staking activities;

  • token incentives;

  • digital asset valuations;

  • revenue allocation; and

  • financial statement disclosures.

Addressing these matters early reduces financial reporting risk and contributes to a smoother statutory audit.

Frequently Asked Questions

Is there a single IFRS standard dedicated to crypto-assets?

No. At present, there is no standalone IFRS Accounting Standard dedicated exclusively to crypto-assets. Entities apply existing IFRS Accounting Standards based on the specific characteristics of the assets and transactions involved.

Can two companies account for similar crypto-assets differently?

Potentially, yes. The accounting treatment depends on the economic substance of the arrangement, the entity's business model and the applicable IFRS requirements. Management should ensure that its accounting policies are appropriate and consistently applied.

Are client crypto-assets accounted for in the same way as company-owned assets?

Not necessarily. The accounting treatment depends on the contractual rights and obligations, the nature of the custody arrangement and whether the entity controls the assets.

Why is documentation so important?

Comprehensive documentation supports management's accounting judgements, facilitates the statutory audit and strengthens the reliability of the financial statements.

How can specialist auditors assist?

Auditors with experience in blockchain businesses understand the accounting issues commonly encountered in digital asset operations and can perform an efficient, risk-focused audit while maintaining independence.

Specialist Audit and Financial Reporting Expertise

Financial reporting for blockchain businesses continues to evolve alongside technological innovation and regulatory developments. Establishing appropriate accounting policies, maintaining reliable records and preparing transparent financial statements are fundamental responsibilities of management.

Our firm combines expertise in IFRS, statutory audit and blockchain technology to support Crypto-Asset Service Providers and other digital asset businesses. We provide independent statutory audit services together with practical insight into the accounting and financial reporting challenges faced by organisations operating within the digital asset ecosystem.