Cryptographic assets, particularly bitcoins, have recently attracted a lot of attention and interest from investors all around the world. Even in the United Arab Emirates, more and more exchange platforms are springing up to make cryptographic asset trading easier. The subject of cryptographic assets is new to everyone and is continually evolving, with no clear accounting techniques outlined anywhere. Due to the various features and factors involved in the process of managing cryptographic assets, it may appear difficult to apply accounting judgments when analyzing accounting for cryptographic assets.
Here we go through some of the key characteristics of those assets that each organization must assess on a case-by-case basis in order to determine the proper accounting treatment in accordance with the accounting framework that applies to them.
Cryptographic assets are digital representations of transferable assets that are secure enough to prevent duplication and are managed using blockchain technology. Cryptocurrencies are the most well-known cryptographic assets on the market, with Bitcoin and Ether being the most well-known in recent years.
Many sites now accept cryptographic assets as payment instead of traditional currencies in return for products and services. Some regulators have recognized such cryptographic assets as legal securities.
Although the accounting treatment for each cryptographic asset may differ from case to case, the following are a few key characteristics of such assets that will aid in determining the right accounting method:
Cryptographic assets can be categorized into multiple types of assets based on the study of the preceding elements and a more extensive inspection, such as inventories, intangible assets, and so on. Cryptographic assets will almost certainly not fall under the category of property, plant, and equipment because they are intangible.
Because there is no accounting standard that particularly addresses the accounting for cryptographic assets and related transactions, it necessitates extensive judgment and a detailed grasp of the underlying facts and circumstances. However, this does not rule out the possibility of no or restricted disclosures for cryptographic assets and related transactions. Apart from the fact that this is a legal domain, the fundamental reason for transparency on the essential facts and circumstances is that cryptographic assets and related transactions are a hot topic among all stakeholders (especially shareholders, analysts, and regulators).
As a result, companies should make sure their financial statements provide clear and comprehensive disclosures. Those may include some of the applicable generic disclosures required by IFRS depending on the accounting categorization by the holder/issuer.
Please contact Alya Auditors if you have any questions about accounting for cryptographic assets.
Cryptographic assets, by their very nature and forms, necessitate subject matter expertise to implement and maintain the accounting techniques consistently. Alya auditors have a dedicated accounting team with professionals that have solved challenging accounting issues in a variety of industries in the UAE. To record and manage your Cryptographic assets or any associated business, we can provide you with value-added accounting and other consultation services. We may share industry best practices and advice with you to help you streamline your accounting processes and meet regulatory obligations as quickly as possible.