Accounting Policy

Peter reads a report from a company holding BTC and sees a substantial profit. Before concluding that more money reached its bank account, he needs to know how the company accounts for its holdings. Accounting policy is this set of principles, not a trading plan for buying bitcoin. International Accounting Standard IAS 8 says that a specific standard applying to a transaction must be followed. Where no specific rule exists, judgment follows a hierarchy: guidance for similar matters first, then basic accounting concepts. The company cannot simply select the result that looks best. [1]

International Financial Reporting Standards are known as IFRS. In 2019 their Interpretations Committee explained the approach to a defined subset of cryptocurrencies. Holdings for sale in the ordinary course of business fall under IAS 2, the inventory standard; otherwise IAS 38, covering intangible assets, applies. Intangible means an asset without physical substance. For BTC, the holder’s role therefore matters. A broker-trader acquiring assets for near-term sale may, under the relevant conditions, use fair value less costs to sell. That special treatment cannot automatically be extended to a company holding bitcoin as a long-term reserve. [2]

US generally accepted accounting principles are called US GAAP. Update ASU 2023-08 requires assets meeting every criterion within its scope to be subsequently measured at fair value, with changes reflected in profit or loss. Here, fair value draws on the price of a sale between market participants in an orderly transaction at the measurement date. The criteria include being an intangible asset recorded on a distributed ledger, secured by cryptography and fungible, meaning interchangeable. The asset must also provide no enforceable claim on underlying goods, services or other assets, and must not be created or issued by the company or a related party. A conclusion about BTC therefore does not automatically extend to every token. [3]

Consider our own simple model. A company holds 10 BTC whose valuation rises from USD 50,000 to USD 60,000 each. The holding’s value moves from USD 500,000 to USD 600,000. If this difference goes through profit or loss under the applicable model, it produces an accounting gain of USD 100,000. That gain is not cash received: the company has sold nothing, still holds the same number of bitcoins and receives no money from the remeasurement itself. The example excludes taxes and other costs. It helps Peter distinguish a rise in reported value from the money a sale would actually bring in. [3]

ASU 2023-08 applies to annual periods beginning after December 15, 2024, including interim periods within those years. An interim report covers only part of a year. For a calendar-year company that did not adopt early, the starting date is therefore January 1, 2025. Early adoption is permitted under the stated conditions; adoption during a year applies from that year’s beginning. Peter needs to check the reporting period and the transition to the new treatment. A press release’s publication date is not enough, and different companies need not have adopted the change at the same time. [3]

Suppose the company changes a figure relating to BTC. We need to know why. IAS 8 distinguishes a change in accounting policy, a revised estimate based on new information, and correction of an error in an earlier statement. Policy changes are generally retrospective, subject to exceptions and any specific transition rules. Changes in estimates from new information are prospective: they affect the current period and, where relevant, future periods. Material prior-period errors are generally corrected retrospectively unless doing so is impracticable. This is more than a choice of words: new knowledge differs from a past failure to use information that was already available. [1]

Peter should not stop at a single profit line. ASU 2023-08 requires the name, quantity, cost basis and fair value of significant crypto-asset holdings. Cost basis represents the costs assigned to the holding, not its market price today. Contractual restrictions on selling and their remaining duration also matter. Annual information additionally connects opening and closing balances through additions, disposals, gains and losses. Those details help explain whether a change in the reported value of BTC comes from buying, selling or remeasurement. [3]

The company’s own BTC must be kept distinct from customer custody. SAB 122 rescinded SAB 121’s guidance on safeguarding customer crypto-assets, but did not remove the need to assess possible losses arising from that responsibility under the applicable rules. Even a properly written accounting policy does not show who can access the keys or whether their backup is secure. Nor does it determine the tax liability on its own; that depends on the tax rules for the situation. Financial statements are valuable evidence for Peter, but ownership, security and tax remain separate questions. [4]