With no specific accounting standard and constantly fluctuating value, working out how best to account for cryptocurrency is a puzzle that regulators are still catching up with.
That said, it is possible – and necessary – to account for cryptocurrencies, whether your clients are holding them as investments or to sell through their business.
It’s also important for accountants to communicate the risks and regulations that apply to these currencies and to make sure their clients are prepared for future changes.
Accounting standards for cryptocurrencies
Part of the trouble with cryptocurrency accounting is that they have no set accounting standard. Instead, accountants need to use existing standards that cryptocurrencies fall under.
In 2019, the Interpretations Committee of the International Accounting Standards Board (IASB) published its conclusions to a project looking at the way IFRS standards apply to the holdings of cryptocurrencies.
It said that cryptocurrencies fit the definition of an ‘intangible asset’ under IAS 38: ‘an identifiable non-monetary asset without physical substance’.
Under this definition, an ‘identifiable’ asset must be capable of being separated from the holder and sold or transferred individually. This is the case with cryptocurrencies.
Meanwhile, a key quality of a ‘non-monetary’ asset is that it doesn’t give the holder the right to receive a ‘fixed or determinable number of units of currency’. The value of cryptocurrencies is volatile in nature, so this part of the definition also applies.
In some cases, however, a business might hold a cryptocurrency for sale, in which case it’s possible it could be classed as inventory under IAS 2.
The IASB committee concluded that IAS 2 applies to cryptocurrencies when they are held for sale in the ordinary course of business – otherwise, IAS 38 applies.
In the UK specifically, the Financial Accounting Standards Board (FASB) has been looking at the accounting and disclosure of crypto assets. In October 2022, it required all entities with crypto assets to measure them at fair value, using the guidance in Topic 820.
Its next steps include considering the presentation and disclosure of crypto assets, with a proposal expected to be issued in the first half of 2023.
Communicating with your clients about crypto assets
The shifting landscape of cryptocurrency accounting standards is more likely to be of interest to accountants than their clients – and it’s important that you stay on top of the latest changes to keep your clients in line with the rules.
But it’s also important for your clients to understand how changeable the rules are, and that any crypto assets they hold could be subject to different accounting standards and potentially different taxation in the future.
With the rules likely to change over time, make sure your clients are keeping all the right records of their crypto transactions and exercising proper caution.
In some cases, clients might feel that because cryptocurrency is a largely unregulated area, they might be able to keep their activities under the radar. Make sure they’re aware that regulations are gradually tightening and that they need to be upfront with their crypto investments to stay within the law.
It’s also important to warn clients that lack of regulation also comes with risks, as scams are common in this area, and crypto assets are not protected by the Financial Conduct Authority or Financial Services Compensation Scheme.
As an accountant, you’re not responsible for your client’s investments – but you can explain the compliance side of things and help them make informed decisions.
At Capium, we stay on top of the latest accounting developments and build them into our software to help you future-proof your practice. Get in touch to talk about the future of accounting software.