Under the current International Financial Reporting Standards (IFRS) framework, there is no specific standard dedicated exclusively to cryptocurrencies. Consequently, their accounting treatment is determined by reference to applicable existing standards, predominantly IAS 38 – Intangible Assets, and in certain limited cases, IAS 2 – Inventories.

Classification as Intangible Assets

The IFRS Interpretations Committee (IFRIC) has affirmed that cryptocurrencies meet the definitional criteria of intangible assets in accordance with IAS 38. These assets are:

• Non-monetary in nature,
• Without physical substance, and
• Identifiable, meaning they are separable or arise from contractual or other legal rights.

Cryptocurrencies can be independently transferred or sold, fulfilling the separability condition required under IAS 38.

Exclusion from Other IFRS Standards

Cryptocurrencies are not accounted for under other IFRS standards due to the following:

• Not Cash or Cash Equivalents: Cryptocurrencies do not qualify as cash or cash equivalents under IAS 7, as they are not legal tender and not readily convertible into a known amount of cash with insignificant risk of change in value.
• Not Financial Instruments: Under IFRS 9, cryptocurrencies are not classified as financial assets since they do not represent a contractual right to receive cash or another financial instrument, nor do they constitute equity instruments of another entity.
• Not Property, Plant andEquipment:Cryptocurrencies do not meet the definition of property, plant and equipment in IAS 16 because they are intangible in nature and not used in the production or supply of goods or services.
• Inventory Exception: In cases where entities such as broker-traders hold cryptocurrencies for sale in the ordinary course of business, such holdings may qualify as inventory under IAS 2, and may be measured at fair value less costs to sell, in accordance with the guidance provided for commodity broker-traders.

Measurement and Amortisation

Where cryptocurrencies are accounted for under IAS 38, they are generally regarded as intangible assets with an indefinite useful life, resulting in the following accounting implications:

• Amortisation: Entities are not required to amortise such assets, in line with the treatment for indefinite-life intangibles.
• Impairment: In accordance with IAS 36 – Impairment of Assets, these assets must be subjected to annual impairment testing, or more frequently if indicators of impairment exist.Impairment Indicators may Include – significant drop in market value, technological obsolescence, changes in regulation or market activity.

Example: An entity holds a cryptocurrency at a cost of $10,000. Its fair value drops to $6,000 and is expected to remain low due to market shifts, an impairment loss of $4,000 is recognised in the income statement.

• Initial Measurement:Cryptocurrencies that meet the criteria of intangible assets are initially recognised at cost, which includes:

• Purchase price: The amount paid to acquire the crypto (e.g., from an exchange or over-the-counter).This includes any non-refundable taxes, levies, or fees directly linked to the acquisition.If the cryptocurrency is acquired through a non-cash transaction, such as an exchange of goods or services, the asset is measured at the fair value of the consideration given or the fair value of the asset received—whichever is more reliably measurable.
• Directly attributable costs: Costs necessary to bring the asset to its intended condition for use or holding.This can include blockchain-related transaction fees, such as:Gas fees (e.g., for Ethereum transactions),Network fees for other blockchains,Broker commissions, if incurred directly to acquire the crypto. Gas fees are included in the initial measurement if they are directly attributable to acquiring the cryptocurrency.

Example: A company buys 1 ETH at $3,000.It pays $50 in gas fees for the transaction on the Ethereum network.The total initial cost of the asset is $3,050.However, if the gas fees relate to other transactions (like transferring crypto to a wallet post-purchase or smart contract execution unrelated to acquisition), they may not be capitalised and would typically be expensed.

• Subsequent Measurement Options:
  • Cost Model: Carried at cost less any accumulated impairment losses.
  • Revaluation Model: If an active market exists, entities may elect to carry the assets at fair value, with subsequent changes recognised in other comprehensive income, in line with IAS 38.

Example: If Bitcoin is traded on multiple exchanges with observable prices and high liquidity, an entity may revalue its holdings to current market value, recognising the change in OCI.

Additional Reporting Considerations

• Disclosure Requirements: Entities holding material amounts of cryptocurrency assets must comply with disclosure requirements under IAS 38, including:
  • The nature and carrying amounts of the intangible assets,
  • The measurement basis applied, and
  • The existence of active markets used in revaluation, if applicable.
• Risk and Volatility Disclosures: Given the high price volatility, regulatory uncertainty, and technological risks associated with cryptocurrencies, entities are encouraged to provide supplementary disclosures to enhance users’ understanding of financial statement implications.

Overview of Cryptocurrency Regulation in the United Arab Emirates

The United Arab Emirates (UAE) has developed a comprehensive regulatory framework for cryptocurrencies to foster innovation while ensuring financial stability and investor protection. The regulation varies across jurisdictions, with the Securities and Commodities Authority (SCA) overseeing crypto activities on the mainland, requiring virtual asset service providers (VASPs) to obtain licenses under Cabinet Resolution No. (111) of 2022 and adhere to Anti-Money Laundering (AML) and Know Your Customer (KYC) standards. In Dubai, the Virtual Assets Regulatory Authority (VARA) regulates virtual asset services outside the Dubai International Financial Centre (DIFC), enforcing licensing, compliance, and governance requirements. Within the DIFC, the Dubai Financial Services Authority (DFSA) supervises crypto-related financial services, including AML and Counter-Terrorist Financing (CTF) measures. Similarly, the Abu Dhabi Global Market’s Financial Services Regulatory Authority (FSRA) regulates virtual assets within ADGM, focusing on licensing, AML, and KYC compliance. VASPs must obtain appropriate licenses from the relevant authority based on their location and meet capital, cybersecurity, and risk management standards. Compliance obligations include stringent AML/KYC procedures, transaction monitoring, the Travel Rule, record keeping, and ongoing reporting. While cryptocurrencies are legal and widely traded in the UAE, businesses and individuals engaging in virtual asset activities must adhere strictly to the regulatory framework and licensing requirements applicable to their jurisdiction.