Critical Investigation on the IFRS Reporting Requirements of Cryptocurrencies

Abstract

In this paper, the author investigates the accounting treatment for cryptocurrencies under the current International Financial Reporting Standards (IFRS) guidelines. The cryptocurrency market is rapidly growing in types and numbers, along with the different avenues of application due to technological advancements. A growing number of companies are using cryptocurrencies to accept payments and other operational transactions and for investment purposes. It becomes even more critical to have appropriate accounting guidelines for recognizing and valuing these unique and risky crypto assets, as they may mislead users when assessing the company’s asset values, profitability, and liquidity aspects. This study is a two-stage exploratory study that adds to the literature on accounting for cryptocurrencies. The first stage is an exploratory study of the current accounting standards under the IFRS framework and its application to the accounting of cryptocurrencies by entities holding them. The second stage of the study performs a critical investigation of the IFRS accounting models through secondary data sources, including academic literature, reports and analyses by professional accounting organizations, criticisms by high-stakes corporations, and comment letters to the IFRS agenda decision 2019 for evaluating the existing IFRS reporting guidelines. The study examines the problems with each reporting model to identify the challenges to the fundamental quality of faithful representation of financial reporting. The need to account for and report these cryptocurrencies appropriately is increasing by the day. Currently, no specific accounting standard pertaining to the accounting treatment of cryptocurrencies exists, allowing businesses to apply various existing standards using their judgment in each case. The study recommends a unified approach to accounting for this technological and financial innovation quickly grasping global markets. This study is timely and relevant as it examines the implications of the reporting of cryptocurrencies under the current accounting framework and argues in favor of the need to establish accounting standards pertinent to the unique characteristics of cryptocurrencies for effective reporting outcomes, thereby providing confidence to businesses, investors and the capital markets.