Accounting for Bitcoin and Other Crypto Assets under IFRS

Although there is no specific standard, Bitcoin and other crypto assets are accounted for under IFRS within the framework of existing standards. In general, the accounting for Bitcoin under IFRS (International Financial Reporting Standards) can be approached as follows:

1. Determining the type of asset

How Bitcoin is classified matters. The classification depends on how and for what purpose the entity uses Bitcoin. Common approaches are:

a) Intangible asset (IAS 38 Intangible Assets)

• Bitcoin is not a physical asset and is not regarded as a monetary asset.

• If the entity holds Bitcoin for the long term, it is generally accounted for under IAS 38 Intangible Assets.

• In this case, Bitcoin is initially recognised at cost.

• It is subsequently measured using either the cost model or the revaluation model.

b) Inventory (IAS 2 Inventories)

• If Bitcoin is an asset that the entity regularly buys and sells in the ordinary course of business, it is accounted for under IAS 2 Inventories.

• If accounted for as inventory, it is measured at the lower of cost and net realisable value.

c) Financial instrument (IFRS 9 Financial Instruments)

• According to the IFRS Interpretations Committee's agenda decision of June 2019, cryptocurrencies are not cash and do not meet the definition of a financial asset; they are therefore not accounted for as financial assets under IFRS 9 Financial Instruments.

• However, certain contracts based on crypto assets (e.g. derivatives) may fall within the scope of IFRS 9.

2. Initial measurement

• Bitcoin is recognised at its cost on the date it is purchased or acquired.

• If Bitcoin is acquired in an exchange transaction, it should be measured at fair value.

3. Subsequent measurement

After initial recognition, the measurement method depends on the standard under which Bitcoin is classified:

a) Intangible asset

• Cost model: cost less accumulated impairment losses. As cryptocurrencies are generally regarded as having an indefinite useful life, they are not amortised; they are tested for impairment annually and whenever there is an indication of impairment.

• Revaluation model: measured at fair value; this model can be applied only if there is an active market. Increases in value are recognised in other comprehensive income, and decreases in profit or loss to the extent they exceed previous increases.

b) Inventory

• Measured at the lower of cost and net realisable value.

• Net realisable value depends on the market price and is updated regularly.

• Entities acting as commodity broker-traders, however, may measure their inventories at fair value less costs to sell under IAS 2 and recognise changes in profit or loss.

4. Impairment testing

• When the market value of Bitcoin falls significantly, an impairment test is carried out under IAS 36 Impairment of Assets.

• The impairment loss is recognised in profit or loss for the period.

5. Sale and disposal

When Bitcoin is sold or disposed of:

• The difference between the acquisition cost and the sale price is recognised as a gain or loss.

In summary:

Bitcoin is generally accounted for under IAS 38 Intangible Assets or IAS 2 Inventories. The entity's activities and its purpose in using Bitcoin play a critical role in determining the correct classification. In addition, national regulations and auditing standards may also shape this process.