Analyst Wants Bitcoin Accounting Rule; Others Urge Caution

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By David R. Jones

Dec. 9 — The International Accounting Standards Board should consider setting an international financial reporting standard for cryptocurrencies such as Bitcoin, Deloitte director Henri Venter said Dec. 9, but others urged caution.

IFRS standards fail to provide clear guidance on accounting for cryptocurrencies—encrypted digital assets used as a medium of exchange—and “standard setting activity is required to provide clear accounting guidance for preparers and to ensure that financial statements” provide important information to users, he told members of IASB’s Accounting Standards Advisory Forum.

ASAF serves as a sounding board for national and regional standard setters but doesn’t make recommendations to IASB.

Digital currencies such as Bitcoin are a “blossoming area” that encompass numerous tradable currency systems, Paul Ferris of the UK Digital Currency Association said at the meeting in London.

Venter, who served as principle author for an Australian Accounting Standards Board (AASB) study on digital currencies, said Bitcoin has a market capitalization of $10.6 billion, and the market caps of other digital currencies together exceed $5 billion.

Doubts About Taking Action

Despite the growing popularity of digital assets, several forum members expressed doubts that IASB should consider the topic of digital currencies in the near future.

Digital currency operators work through computer peer-to-peer networks, with each operator using a registry of assets and transactions known as a blockchain.

Blockchains allow transactions that are almost cost-free and are conducted in near real-time, with low barriers to entry, Ferris said.

Facing Bank Resistance

Digital currencies, however, confront barriers to growth, he said, including lack of legal clarity and what he called active resistance from banks.

“Some things we do aren’t fully understood by banks,” Ferris said.

Lacking Clear Guidance

As digital currency exchanges can’t draw on clear accounting guidance, digital currencies are accounted for under International Accounting Standard 2: Inventory or under IAS 38: Intangible Assets.

Bitcoin Group Ltd. of Australia, for instance, considers Bitcoins to be intangible assets with indefinite life and uses IAS 38’s revaluation model.

In contrast, Australian digital-currency trader Digital X Ltd. treats its currency as a commodity and applies fair-value measurement under IAS 2.

Measure at Fair Value

AASB believes that digital currencies should be measured at fair value, with changes in fair value recognized in profit or loss, Venter said.

Accounting for digital currencies highlights a broader concern with IFRS, Venter said: “No accounting standard exists to address investments in intangible assets or other commodity-type assets that are not financial instruments or inventory.”

Accounting for Intangible Assets

Along with digital currencies, such intangible assets as emission rights and water rights are sometimes held for investment purposes, as are gold, diamonds and other commodities, he said.

Venter called on IASB to develop an IFRS or to change existing standards to address accounting for investments in intangible assets and commodities, including digital currencies.

Potential Approaches to Change

This might involve drafting a new IFRS, though he recognized that this could take a long time to accomplish.

Alternately, Venter said, IASB could modify existing standards to amend the definitions of:

  •  cash or cash equivalents;
  •  a financial asset; or
  •  the measurement guidance in IAS 2 and IAS 38.

“In our opinion, the most appropriate course of action is a new IFRS that provides clear guidance on the accounting for digital currencies but that also addresses the larger problem of intangible assets and commodities held for investment purposes,” according to the AASB study.

‘Gap in Literature.’

AASB chairman and CEO Kris Peach said IASB eventually would need to consider how to account for digital currencies.

“There’s a gap in our literature, and we need to plug that hole at some point,” she said.

Doubts About Standard Setting

Several ASAF members, though, cautioned that Bitcoin-type systems are just beginning to take shape and said it’s too soon for IASB to consider setting IFRS for them.

“We’re clearly at the infancy stage” of digital currency, and “too many things have to happen,” Hal Schroeder of U.S. standard setter the Financial Accounting Standards Board (FASB) said.

Schroeder said FASB wouldn’t consider standard setting at this stage of digital currencies’ development.

Failing the Standard-Setting Test

The Canadian Accounting Standards Board’s Linda Mezon agreed that IASB should wait before considering an IFRS on digital currencies.

“This wouldn’t pass the standard-setting test,” she said.

Andrew Watchman, CEO of the European Financial Reporting Advisory Group, concurred, saying that this doesn’t seem like the right time for IASB to consider setting a standard for digital currencies.

Keeping on Watch List

IASB chairman Hans Hoogervorst said the board would follow developments in digital currency.

“We’ll keep this on the watch list,” he said.

To contact the reporter on this story: David R. Jones in London at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

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