Accounting for Crypto-Assets under IFRS

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).

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

Examples include:

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.

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:

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

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.

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:

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

Appropriate documentation supporting management's classification decisions is essential.

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:

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

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

Management should carefully distinguish between:

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

Revenue may arise from:

Management should establish policies that clearly define:

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

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.

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

Depending upon the circumstances, disclosures may address:

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

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

This includes assessing:

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.

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.

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.