Safe to say that in accounting for crypto, Philippine Accounting Standards (PAS) 7, Statement of Cash Flows [as ‘cash and cash equivalents’], is out for the reasons already mentioned above; Philippine Financial Reporting Standards (PFRS) 7 and 9, Financial Instruments [as ‘financial assets other-than-cash’], may also not seem to be appropriate (similar to the treatment of gold bullion); PAS 40, Investment Properties, whilst plausible at first glance especially for capital appreciation holders, is not applicable since it lacks the physical substance – particularly being a land or building. With that, it leaves us with PAS 2, Inventories, PAS 38, Intangible Assets, and PFRS 13, Fair Value Measurements.
Absent the formal pronouncements, the author thinks the below accounting treatment from the perspective of crypto-holder would be compliant with (I)PFRS:
Initial recognition and measurement
Irrespective of the classification, recognition should be made from the time asset recognition criteria are met.
The initial measurement is the purchase price plus the directly attributable cost.
Subsequent measurement
Cost model
Under the cost model, the asset shall subsequently be measured at cost LESS ACCUMULATED AMORTIZATION AND IMPAIRMENT LOSSES. Since crypto is an indefinite-lived asset, amortization is not relevant. However, useful life of such asset shall be reviewed at each reporting period for any contradictory evidence, and impairment assessment shall be performed annually and whenever there is an indication that the asset may be impaired.
The provisions of PAS 36, Impairment of Assets, deal with the related subject matter. (Refer to the full text of the IAS 36 for details.)
Revaluation model
The use of revaluation model is only permitted if there is an ACTIVE MARKET in which they are traded.
Under the revaluation model, the asset shall subsequently be measured at FAIR VALUE less accumulated amortization and impairment losses. The increase as a result of revaluation shall be credited directly to equity under the heading REVALUATION SURPLUS, except if the increase represents a reversal of impairment loss. The decrease as a result of revaluation shall be charged against any outstanding balance of the revaluation surplus with any residual to be treated as an impairment loss.
The cumulative revaluation surplus included in equity may be transferred directly to retained earnings when the surplus is realised. The whole surplus may be realised on the retirement or disposal of the asset. However, some of the surplus may be realised as the asset is used by the entity; in such a case, the amount of the surplus realised is the difference between amortisation based on the revalued carrying amount of the asset and amortisation that would have been recognised based on the asset’s historical cost. The transfer from revaluation surplus to retained earnings is not made through the income statement.
The aforementioned may not be applicable if you hold the crypto for sale in the ordinary course of business. In which case, the asset needs to be carried at LOWER OF NET REALIZABLE VALUE AND COST – except for commodity broker-traders where FAIR VALUE LESS COST-TO-SELL (THROUGH PROFIT OR LOSS) is more appropriate.
Disclosure
Refer to PAS 38’s Disclosure section – unless you’re holding the crypto for sale in the ordinary course of business in which case you need to consider the requirements of PAS 2’s Disclosure section. Notwithstanding the purpose of holding a crypto, PAS 1’s requirements and principles should be observed.
NEXT STEPS
EY, along with the other Big Four Firms, strongly believe that dealing with crypto-asset accounting requires a detailed understanding of both the blockchain and relevant accounting concepts. Each individual situation will require a unique approach, tailored with the appropriate professional advice.
The world is still on a wait-and-see, but we can always start preparing. The relevant question is, how are you positioning yourself?
Next articles: VALUATION OF CRYPTO (IFRS 13)… TAXATION ON CRYPTO… AUDITING CRYPTO…
