Page 45 - CMA Journal (Jan-Feb 2026)

Focus Section

There is no IFRS/IAS that exclusively explains the • It has no physical substance
accounting and reporting of cryptocurrency at the • It is identifiable and separable
moment. Therefore, the existing standards may be • It can be sold, transferred, or exchanged individually
applied to similar situations as the underlying principles
are the same for accounting treatments and disclosures. Accordingly, under the above guidance, cryptocurrencies
Guidance from the existing standards can be used for are generally accounted for as intangible assets under
reporting entities dealing in cryptocurrencies. For IAS 38. Cryptocurrencies are normally treated as
example, in the absence of any specific standard for an indefinite-life intangible assets, meaning no
industry or area, guidance can be obtained from the amortization shall be recognized, but annual impairment
conceptual framework and IAS 8 for drawing the testing is required. The useful life assessment depends on
accounting policies of such entities. For further details facts and circumstances, even though in practice it is
about accounting and reporting requirements, guidance usually indefinite.
may be derived from other standards.
11) Measurement under IAS 38
7) Why is Cryptocurrency not Classified as
IAS 38 permits two measurement models after initial
Cash or Cash Equivalent under IAS 7?
recognition viz Cost Model and Revaluation Model. The
IAS 7 defines cash as cash on hand and demand deposits, Revaluation model is only effective when there is an
while cash equivalents are short-term, highly liquid active market.
investments readily convertible into known amounts of
cash and subject to insignificant risk of changes in value. The cost model often fails to accurately reflect economic
Cryptocurrency fails this definition because: reality due to the highly volatile nature of
cryptocurrency. In cases where an active market exists,
• It is not legal tender in most jurisdictions
• It is not generally accepted as a medium of exchange entities can use the revaluation model to determine the
• Its value is subject to significant and rapid fluctuations fair value of cryptocurrency. However, under IAS 38:
Therefore, cryptocurrency cannot be classified as cash or • Revaluation increases go to OCI only to the extent
cash equivalents under IAS 7. they do not reverse a previous revaluation decrease
recognized in profit or loss.
8) Why is IAS 21 (The Effects of Changes in
• Revaluation decreases go to profit or loss unless they
Foreign Exchange Rates) not Applicable
reverse a previous revaluation surplus, in which case
to Cryptocurrency? they go to OCI.
Cryptocurrencies do not meet the definition of a This treatment is controversial because cryptocurrencies
currency used in IAS 21 because they are not a functional are often held for trading purposes, where fair value
currency of an entity and are not issued or backed by a changes would normally result in profit or loss.
sovereign authority. Therefore, IAS 21 does not apply to
them. 12) Inventory Treatment for Certain Entities
under IAS 2
9) Why is Cryptocurrency not a Financial
Asset under IAS 32 & IFRS 9? For entities such as cryptocurrency brokers or traders, IAS
2 Inventories may apply. IAS 2 allows commodity
IAS 32 defines a financial asset as one that gives rise to a broker-traders to measure inventories at fair value less
contractual right to receive cash or another financial costs to sell, with changes recognized in profit or loss.
asset. Cryptocurrency does not meet this definition This approach is more consistent with the trading nature
because:
of cryptocurrency and is often considered more
• There is no contractual counterparty appropriate for exchanges and brokers. This treatment
• There is no issuer guaranteeing repayment applies only when cryptocurrencies are held for resale in
• Ownership does not represent equity or debt of the ordinary course of business, not for investment or
another entity
treasury purposes.
As a result, cryptocurrency does not fall under IAS 32 or
IFRS 9, unless it is structured in a way that creates 13) Fair Value Measurement under IFRS 13
contractual rights, such as certain security tokens. Whenever fair value is used, IFRS 13 applies. Fair value is
Derivatives, futures, or options linked to cryptocurrencies determined using:
are financial instruments under IFRS 9.
• Level 1 inputs when active markets exist
10) Classification as an Intangible Asset
• When markets are not active, use Level 2 or 3 inputs
under IAS 38
Many cryptocurrencies may qualify as Level 1 because of
IAS 38 defines an intangible asset as an identifiable
non-monetary asset without physical substance. frequent trading on exchanges, but market disruptions
Cryptocurrency meets this definition because: may require judgment.
ICMA’s Chartered Management Accountant, Jan-Feb 2026 43