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Accounting for crypto assets

Edward Haygarth

What’s the issue?

Currently, IFRS does not provide specific guidance on accounting for crypto assets. This IFRS Viewpoint follows our earlier IFRS Viewpoint No.9 ‘Accounting for cryptocurrencies – the basics’ and seeks to explore the accounting issues that arise for miners and validators in mining and maintaining the blockchain in accordance with existing IFRS. 

In this context, it looks at the technology behind blockchain, explaining the difference between a proof of work or proof of stake algorithm. It considers the accounting for transferred cryptocurrency earned by miners and validators in the form of transaction fees, as well as the accounting for newly created cryptocurrency by miners (block rewards) and the implications for revenue recognition.

Determining the appropriate accounting treatment

With the current lack of clear guidance, there is likely to be a large amount of diversity in practice as to what alternative accounting treatments may be acceptable for crypto assets and in particular cryptocurrencies. Until further specific guidance is issued, it’s necessary to obtain a detailed understanding of the particular type of cryptocurrency and use of blockchain being considered.

We therefore recommend following a framework to determine the most appropriate accounting treatment. The framework should consist of the following steps:

A four step process

Step 1 – Understand the blockchain environment the entity is operating in
Step 2 – Understand how the entity operates (solo or in a pool)
Step 3 – Understand the rights associated with the particular cryptocurrency (or crypto asset)
Step 4 – Apply existing IFRSs to the specific facts and circumstances based on the understanding obtained above.

Looking forward

The world of cryptocurrencies, and more importantly the growth in the number of applications of the underlying blockchain technology, is evolving fast. This results in it being difficult to create a standardised taxonomy for crypto assets. In addition, with the current lack of clear guidance, there is likely to be a significant diversity in practice as to what alternative accounting treatments may be acceptable.

Therefore, while this viewpoint provides guidance on the general accounting considerations relating to the cryptocurrency mining industry, each specific situation should be assessed based on its own underlying facts and circumstances. Furthermore, as the use of blockchain technology evolves, more specific guidance is issued, and more standardised industry practice is established, there may be changes in the current thinking around acceptable accounting treatments. It is highly advisable then that consultation with your Grant Thornton advisor is sought in all situations.

If you would like to discuss any of the areas highlighted in this Viewpoint please speak to your usual Grant Thornton advisor, your local member firm or one of our global IFRS contacts.