Accounting for Cryptocurrencies

There has been little or no information on the accounting treatment of cryptocurrencies or Initial Token Offerings (ITO) from the various accounting bodies. So it was a welcome change to find that the ICAEW Technical Advisory Service issued a Paper titled “Accounting for Cryptocurrencies under FRS 102” in September 2018. The Paper essentially covered the accounting treatment of cryptocurrencies held by clients. The Paper discards treating cryptocurrencies as cash or cash equivalents as well as a Financial Instrument under FRS 102. However, cryptocurrencies purchased and sold as part of the company’s ordinary business could be treated as inventories. The cryptocurrencies would then need to be held at the lower of cost or net realisable value as per FRS 102.

The Paper suggests that the most likely category would be “Intangible Assets “. The definition for Intangible assets under FRS 102 is an identifiable non-monetary asset without physical substance.

Such an asset is identified when:

1. It is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability; or

2. It arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Cryptocurrencies can, therefore, be considered as intangibles because they are:

• Identifiable

• Saleable on Crypto Exchanges

The accounting policy under FRS 102 offers a choice and this is between:

• The cost model where the cryptocurrency would be recorded at cost less accumulated impairment

• The revaluation model where the cryptocurrency would be carried at its market value

Increases in market value would accumulate in a Revaluation Reserve and be recognised through Other Comprehensive Income (OCI). The increase would only be recognised in the Profit & Loss Account to the extent it reverses a previous revaluation decrease. Decreases in carrying value should be recognised through the OCI and any excess in the Profit & Loss Account.

Presentation of cryptocurrencies in the financial statement, therefore, depends on the accounting treatment. Cryptocurrencies treated as inventories would be shown within stock under current assets and if treated as intangible assets shown as a fixed asset intangible or fixed asset investment. The Companies Act 2006 does not define the term investment and it is therefore considered reasonable to use the term.

This is a good first step in covering the accounting treatment of cryptocurrencies held by clients. We look forward to more papers covering the accounting for companies that have issued cryptocurrencies as part of an ICO rather than those that are simply holding the cryptocurrency. This article was originally written for the FinTech platform CrowdforAngels on November 28, 2018.