[EY] Accounting for crypto-assets

This report introduces cryptocurrencies and other types of crypto-assets and discusses some recent activities by accounting standard setters in relation to crypto-assets.

What Are Crypto-assets?

Crypto-assets are digital assets recorded on distributed ledgers, secured through cryptography. They fall broadly into two categories:

• Cryptocurrencies: e.g., Bitcoin and Ether, designed as peer-to-peer alternatives to fiat money.
• Tokens: digital assets serving specific functions beyond general payment, often created through Initial Coin Offerings (ICOs). Examples include:
  • Security tokens – representing ownership or profit rights.
  • Utility tokens (MAG tokens) – functioning as mediums of exchange within decentralized systems.
  • Hybrids and colored coins – blending characteristics or tokenizing existing assets.

Accounting for Crypto-assets

Standard setters have started exploring approaches, though no unified standard exists:

• Australian Accounting Standards Board (AASB): suggested digital currencies should not be treated as cash or financial instruments under IFRS, but as intangible assets (IAS 38) or inventories (IAS 2). AASB proposed fair value accounting due to relevance and usability.
• Japanese ASBJ: proposed market value measurement for virtual currencies if an active market exists. Dealers holding crypto on behalf of customers must mirror this in both assets and liabilities.
• IASB: has acknowledged the issue but has yet to launch a dedicated research project.

Special Situations

• Forked currencies: likened to spin-offs, creating new assets alongside existing ones, raising complex reporting questions.
• Token presales (SAFTs): may constitute securities under U.S. law, unlike many ICO tokens, adding further accounting and regulatory complexity.
• Short-selling: treated similarly to derivatives, but guidance on forks’ impact remains unclear.

Conclusion

Crypto-assets introduce unprecedented challenges for accounting under IFRS. Their classification often defaults to intangible assets or inventories, but evolving structures like ICOs and forks require case-by-case analysis. Without formal global standards, companies must rely on judgment, supported by professional advice, to balance technological innovation with accurate financial reporting.