Time to Get Serious About Crypto Asset Accounting?


While there has been slower progress with regards to the treatment of crypto assets by regulators than some would like, it is clear that addressing the new asset class has come to the forefront of their agendas. Rather than be caught off guard and forced to play catch up to compliance, forward thinking companies are investing their time and capital into getting their crypto books in order.

This forward thinking led many finance and accounting decision-makers to realize that accounting for crypto assets is--well, murky. The inherently complex nature of crypto assets and lack of a standard practice has left many with no viable options to properly track their gains and losses, no matter how well-intentioned. With the rise in value and popularity of crypto assets  such as Bitcoin and Ethereum, the established accounting professionals have started to weigh in on regulation and approaches for compliance.

Ernst & Young concedes that, “The nuanced, constantly evolving nature of the crypto-asset phenomenon, coupled with the lack of relevant formal accounting pronouncements, presents complex challenges for preparers of financial information.” While the accounting treatment for crypto assets is challenging, EY does offer great insight and summary of research and pronouncements in the field in IFRS: Accounting for Crypto Assets.

Price Waterhouse Cooper (PwC) explains in their In Depth: Accounting Considerations Under IFRS, “As activity in cryptographic assets has increased, it has attracted regulatory scrutiny across multiple jurisdictions.” This scrutiny has placed a spotlight on firms such as PwC to advise companies with crypto assets on their accounting practices, be it for an ICO, custodian of assets, or assessing fair value from trading activity. The article goes on to state:

The range of possible classifications, as well as their associated measurement, indicates the importance of understanding the nature and characteristics of the cryptocurrency….This increases the importance of implementing specific accounting policies and ensuring their consistent application to similar transactions.

At SoftLedger, we’ve recognized the lack of crypto accounting options for enterprise and developed our own module to address this gap. The module breaks down the treatment of crypto transactions into four classifications:

  • Deposit - any crypto asset entering into the SoftLedger ecosystem (e.g. fiat for crypto)

  • Withdrawal - any crypto asset exiting the SoftLedger ecosystem (e.g. crypto for fiat)

  • Trade - any crypto asset being exchanged into another crypto asset

  • Transfer - the same crypto asset being moved from one location to another (e.g. an exchange to a wallet)

In addition, each transaction may have many cost layers as the trade placed will likely be filled from multiple sources. For example, if a trade is placed to buy 100 Bitcoin, the order will likely be filled from multiple sources adding up to reach 100 Bitcoin. Similarly, when selling 100 Bitcoin, you will likely be pulling from multiple buys of bitcoin at different prices that will form your collective cost basis for the transaction. It is these intricacies that make a solution deliberately built for crypto accounting necessary to have accurate visibility of crypto assets.

From the current environment, two things are clear. 1) Accounting treatment of crypto assets for holders, issuers, and exchanges are nowhere near as concrete as across other asset classes. 2) Accounting principles to be applied to the various participation in crypto assets have taken center stage for regulators worldwide.

With any new asset class, it pays to be proactive and stay ahead of regulation as an audit can derail operations and take up valuable resources instead of focusing on your core business. SoftLedger is ready now to help enterprises navigate the developing standards for accounting treatment of their crypto assets.