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What are cryptocurrencies and how do we account for them? – Technology

While we wait for the current review of FRS 102, we need to exercise judgment and find the best possible accounting fit for cryptocurrencies, as they are not specifically represented in FRS 102 at this time.

So what exactly is cryptocurrency and how do we account for it?

Is it cash?

No. Although we may consider cryptocurrencies to be cash, they are not legal tender and do not meet the FRS 102 definition of:

Highly liquid cash and sight deposits and short-term investments which are readily convertible into known amounts of cash and which are subject to negligible risk of change in value.

Is it a financial instrument?

No. In some cases, cryptocurrencies can be accepted in exchange for goods, but as we have seen above, they are not cash and they do not qualify for cash either. This would result in a failure of the FRS 102 reference for financial instruments:

A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Is it an inventory?

May be. The inventory includes items that are held for later sale, so depending on how the company plans to use the cryptocurrency, it could fall within this range. For example, if the business needs to frequently buy and sell cryptocurrencies in order for it to trade cryptocurrencies as part of the normal course of business, inventory would be the correct classification.

If so, the cryptocurrency would be held at the lowest of:

  • Cost (the value of the money initially exchanged for the cryptocurrency); and
  • estimated selling price (the value at which it will be sold, which is likely to be based on current market prices) less costs to complete and sell.

The presentation would then be in the current assets section of the balance sheet as inventory. The balance sheet note on stocks in the financial statements would then indicate the distribution of stocks which would include the cryptocurrency.

What if I don’t trade cryptocurrency?

If inventory is not the correct classification due to the way the company uses cryptocurrency, classification as an intangible asset is probably the best solution.

This is due to the FRS 102 definition of an intangible asset which is:

An identifiable non-monetary asset without physical substance. Such an asset is identifiable when:

(a) it is separable, or
(b) it arises from contractual or other legal rights.

Cryptocurrency would meet the definition above because it is not physically present and it is separable from the business because it can be sold in exchange or, in some cases, be used in exchange for goods.

The basis of measurement of cryptocurrency when it is held as an intangible asset is either:

  • the cost (again being the value of the money initially exchanged for the cryptocurrency), with amortization and depreciation applied; Where
  • revaluation, corresponding to the fair value less depreciation and impairment.

Before deciding which one is the most appropriate, it is advisable to refer to section 18.18 of FRS 102, which allows revaluation of intangible assets only if the fair value can be determined from an active market, which:

  • contains homogeneous elements,
  • has willing buyers at all times; and
  • prices available to the public.

This is possible for some cryptocurrencies, but not necessarily all.

There are also two options for the presentation of the balance sheet.

  • Option 1 is to hold the intangible asset as a fixed asset; and
  • Option 2 is to hold the intangible as a capital investment.

Both are equally acceptable under company law, the decision should be made based on how the company intends to use the cryptocurrency in the future.

A clear accounting policy will be required for each cryptocurrency classification decided upon. The accounting policy should clearly state:

All other information should comply with Section 13 of FRS 102, Inventories or Section 18 Intangible Assets, as applicable. Additional information should also be provided to ensure that a true picture is given.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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Crypto Carnage expects Korean 2.2MS account holders on Friday

Source: iStock / TwilightShow

South Korean regulators held an emergency meeting ahead of a crucial day, which could see the vast majority of the country’s crypto trading platforms shut down before a regulatory deadline of September 24, with many more removing KRW escrow deposits and KRW-crypto trading.

Per Donga and Maeil Kyungjae, the Financial Services Commission (FSC) and Financial monitoring service (FSS) held an unscheduled summit to see if they could determine which exchanges have already closed and which now only offer crypto-to-crypto exchanges.

To do this, trading platforms must have obtained Information Security Management System (ISMS) certification.

So far, only the “big four” exchanges – Upbit, Korbit, Coinone, and Bithumb – secured the banking partnerships that will allow them to continue to offer KRW-related services. Despite frantic last-minute talks with the banks of four others, it appears that all but one have now conceded that they will miss the deadline after all.

Donga cited a Gopax official as stating that he was still “in negotiations with a financial firm to issue a real name deposit and withdrawal account”, adding that his “KRW market will continue to operate normally” – for now at least.

But the FSC noted:

“We have confirmed that 24 exchanges have informed customers that they will end [or suspend] their KRW market services by posting notices on their websites.

However, EDaily reported that the number of platforms holding ISMS certificates was actually 43, with three of them getting their documentation in no time. The media reported that Delio, the Blockchain company, and Lawdians had obtained their certificates within the last few days and have now reported this fact to regulators.

The Ministry of Science and ICT, which oversees the certification process, reminded the industry that ISMS certificates are valid for three years, after which companies must apply for new documents.

“We will create a secure crypto-asset service environment, ensuring that crypto-asset operators who have achieved ISMS certification properly maintain their certification,” the ministry said.

Meanwhile, Koh Seung-beom, the chairman of the FSC, warned investors:

“If you use a [exchange] which has not received ISMS certification, you must be very careful as there is a risk of damage.

This will be little consolation for the millions of customers who do business with platforms that are not among the “big four”. Data compiled by the office of opposition People’s Power Party deputy Kang Min-guk indicated that a total of 2,216,613 account holders have wallets on the 18 largest platforms that are expected to cease KRW trading – with some $ 2 billion in tokens and fiat in their wallets.

Gopax users – all 566,608 of them – now face a nervous wait to see if the exchange can secure its banking deal before the end of business hours, while 438,823 Colombe wallet and 337,981 Huobi Korea account holders will be limited to crypto-to-crypto market activities.

All of this will be relatively positive news for the ‘big four’, who may find themselves the only players left in town over the weekend.

They will also be bolstered by the news that the cumulative value of deposits on the four major exchanges has passed the $ 50.8 billion mark, Chosun reported.

Meanwhile, another international exchange with a relatively large South Korean user base has taken steps to distance itself from the domestic market.

BitMEX wrote on his website that “with the introduction of new local regulatory requirements in South Korea on September 24, 2021,” it would “remove Korean-language documents from its website and trading platform,” well he added that “all other services will remain unaffected.”

Binance and the Singapore-based company Parbit trading platform have both already taken similar steps.

BitMEX concluded by noting:

“We fully support the efforts of regulators to help set standards for cryptocurrency products that will support the advancement of this rapidly growing asset class.”

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Learn more:
– Most polled South Koreans want government to tax crypto
– South Korean ruling party argues over crypto tax

– South Korean Police Force to Form Dedicated Crypto Teams
– South Korean MP tells government: “Don’t let a crypto monopoly emerge”

– Think Tank tells South Korean banks: start offering crypto safekeeping
– The regulator identifies “fake” Crypto Exchange bank accounts


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