Holdings of Cryptocurrencies – The IFRS Interpretations Committee confirmed which, and how, IFRS standards are to be applied

Mon 05 Aug 2019

The IFRS Interpretations Committee (“Committee”) has now clarified which, and how, IFRS standards are to be applied to holdings of cryptocurrencies; this conclusion being reached after the Committee put their tentative decisions out for discussion back in March. Refer to our previous blog article for further details.

The previous tentative conclusions reached have now been confirmed, with the main points being clarified as follows:

What is the nature of these assets – Cryptocurrencies are intangible assets under IAS 38 Intangible Assets (“IAS 38”) since they can be individually sold or transferred (i.e. can be separated from the holder), but they do not give the holder a right to receive a fixed or determinable number of units of currency.  They do not, however, meet the definitions of: a) cash – cryptocurrencies certainly can be used as a means of exchange to obtain goods and services, but they are not used as a medium of exchange and as the monetary unit in pricing goods or services to such an extent that it would be the basis on which all transactions are measured and recognised; or b) financial assets – cryptocurrencies are not equity instruments of another entity, do not give rise to a contractual right for the holder and are not contracts that may be settled in the holder’s own equity instruments.

What IFRS standards are to be applied – Cryptocurrencies that are held for sale in the ordinary course of business fall within the scope of IAS 2 Inventories (“IAS 2”) and therefore IAS 2 must be applied. An entity acting as a cryptocurrency broker-trader must measure its cryptocurrencies at fair value less costs to sell.  If IAS 2 is not applicable, an entity must apply IAS 38 and recognise its holdings of cryptocurrency either using the cost method or a revaluation model i.e. fair value measurement by reference to an active market, with the recognition of any increase in fair value in other comprehensive income (“OCI”) without subsequent recycling to profit or loss, and of any reduction in profit or loss.

What disclosures are required – The specific disclosures required will depend upon which standard is applied to account for the cryptocurrencies i.e. IAS 2 paragraphs 36-39 or IAS 38 paragraphs 118-128.  Where the cryptocurrencies are held at fair value, the requirements of IFRS 13 paragraphs 91-99 will also apply.  The Committee, perhaps most importantly, also specifically reiterated that an entity’s management must disclose the significant judgments it has made when accounting for holdings of cryptocurrencies, as in accordance with IAS 1 paragraph 22, and provide disclosures of any significant events that have occurred after the end of the reporting period i.e. any significant changes in fair value, as in accordance with IAS 10.21.