The Tech Faculty recently published a Tech Essentials guide to cryptocurrency; I enclose an overview of the guide and a number of insights and tips provided.
The guide starts with the fairly basic issue of trying to define cryptocurrency, and differentiate it from cryptoasset as there is some question as to whether the two terms are interchangeable.
The guide outlines why accountants should be interested – including being prepared for when a cryptocurrency is mined, issued or held as an investment, or used as a means of exchange. Practical challenges include accounting and tax treatment as well as the prevention of money laundering.
The guide notes regulation affecting cryptocurrency is evolving and varies widely across national jurisdictions, although all countries appear to agree it is not legal tender. In the UK, some cryptoassets are inside the regulatory perimeter of the FCA, whereas in China, the government has banned financial institutions from handling cryptocurrency transactions and banned domestic cryptocurrency exchanges. Across the EU there are anti-money laundering considerations, and exchanges and providers of cryptocurrency wallets will be affected by upcoming EU anti-money laundering regulations.
Again, accounting for cryptocurrencies is a new and rapidly evolving area with no specific references to cryptocurrency in IFRS or FRS 102. The guide suggests the treatment of cryptocurrencies will vary depending on the entity’s business model – what it intends to do with the asset. It is generally accepted cryptocurrencies are not cash or cash equivalents, and are unlikely to be financial instruments. Depending on the business model, they could be treated as inventories or intangible assets. The guide discusses further the presentation in financial statements and potential disclosures.
The guide refers to guidance published by HMRC in December 2018 that suggests that buying or selling of cryptoassets by individuals will normally amount to an investment activity and be subject to capital gains tax. Furthermore, HMRC considers it will be rare for individuals to be transacting with sufficient scale and organisation to be considered to be trading. One tricky issue to be resolved relates to jurisdiction, as the entire Bitcoin blockchain is stored on servers across the world, making the location of cryptocurrency for tax and legal purposes a multi-jurisdictional challenge.
Glossary and other resources
In addition to exploring the areas outlined above in greater detail, the guide also has an extended glossary to help readers understand the wide array of terminology. It also has a list of ICAEW and other resources to help members cope with some of the accounting and other issues outlined above.
The full Tech Essentials guide to cryptocurrency is available to members of the Tech Faculty as part of their annual subscription. If you are interested in finding out more about the faculty, please visit our joining page.