Cryptocurrency Accounting is All Set to Hit Mainstream Soon

The debate on the universal agreement of cryptocurrency accounting has not reached a conclusion

The world we live in today is becoming even more of a sci-fi movie. To summarize, robots are performing surgery, chatbots are assisting customers, and most importantly, people are using virtual currency as a digital asset and a trading source. Doesn't this sound like we just jumped out of a completely sophisticated science film? Indeed it does. But this is the inevitable evolution we are experiencing today. At a time when digital currency is almost in the mainstream with millions of people diving into the new investment capsule, cryptocurrency accounting is getting attention.

Backed by blockchain technology, cryptocurrency is decentralized money that has no central authority. These digital currencies are owned by an entity that owns the key and creates a new entry in the ledger every time a cryptocurrency is created. The operations of cryptocurrencies are commenced without the involvement of banks, governments, or any middlemen, making them independent and unaccountable at the same time. With the help of its advanced coding and encryption technology, cryptocurrencies are stored safely and securely. Despite the growing popularity of cryptocurrency, the accounting rules have not caught up with today's needs and there is a debate on a universal agreement on cryptocurrency accounting. Since generally accepted accounting principles (GAAP) considers cryptocurrency as an intangible asset, the value can be reduced on a balance sheet over time. Therefore, cryptocurrency accounting involves many organizational, calculation, and regulatory challenges that need to be addressed. Since we don't have any new framed regulations for cryptocurrency accounting, accountants are trying to fit the disruptive concept in the existing ecosystem.

Besides, many business companies are also opting to invest in digital currency over its familiarity. For example, MicroStrategy has invested billions of dollars in cryptocurrency, instigating many more organizations to do the same. With a new frontier in place, it is getting more hectic for accountants to manage the flaws. Therefore, there is also an emergence of cryptocurrency accountants in the market. Owing to the unstoppable adoption of digital currency, the demand for cryptocurrency accountants is expected to climb the cliff sooner or later.

Fitting Cryptocurrency Inside the Existing Accounting Standards

Although cryptocurrency is also a form of money, it can't be accounted for like cash. According to IAS 7 and IAS 31, only currencies that can be readily exchanged for any goods and services should be accounted as money. This marks a major setback to many companies that are rolling up their sleeves to streamline digital currency payments. Already, many big organizations are accepting bitcoin payments. However, that doesn't seem to change the fact that cryptocurrency is not a legal tender.

In accords with IFRS 9, cryptocurrency should be accounted for as a financial asset at fair value through profit or loss. Unfortunately, even that doesn't fall in place because the regulation clearly mentions that a financial instrument should be represented as cash and obliged to receive cash or another financial instrument, which cryptocurrency is not.

Thankfully, cryptocurrencies do meet the definition of an intangible asset as mentioned under IAS 38. According to the rules, intangible assets are identifiable non-monetary assets without physical substance. This also corresponds with IAS 21, The Effects of Changes in Foreign Exchange Rates, which states that an essential feature on a non-monetary asset is the absence of a right to receive a fixed or determinable number of units of currency. IAS 38 allows intangible assets to be measured at cost or revaluation.

Accounting Bitcoin Under US Federal Regulation

Similar to the general cryptocurrency market, accounting for bitcoin is also a critical task. Under the US Federal Tax regulations, bitcoin is considered a property, making it applicable for property laws. Therefore, cryptocurrency will rule out the losses or gains under tax laws. Besides, taxpayers must include the fair market value of the digital currency as taxable income when it is used to pay for goods or services. Accounting firms in the US are also obliged to keep the digital currency records under Schedule C or 1120 Form.

The Demand for Cryptocurrency Accountants will Drastically Go Up

The increased influence of cryptocurrency among the general public has increased the demand for cryptocurrency accountants who are well-versed in digital currency payments, trading, and regulation methods. Similar to normal accountants, these cryptocurrency accountants keep their clients informed and show how to take advantage of gains and losses before and after tas season.

Besides owning cryptocurrency and accounting for clients, crypto mining and staking will also require cryptocurrency accountants to monitor the moderations. Unfortunately, both the cryptocurrency mining communities and accountants will have to sort out the regulations with the government before bringing them under accountancy.