Crypto assets and liablities

All topics related to IFRS Standards.
Post Reply
AntonMullo
Posts: 2
Joined: 11 Feb 2022, 09:46

Crypto assets and liablities

Post by AntonMullo »

Hello everybody.

I have a question regarding whether company should be recognizing crypto assets and liabilities that it holds on behalf of the clients.

There are a lot of guidance from PWC and EY etc regarding whether to shown in the balance or off (quite helpful is https://www.pwc.com/gx/en/audit-service ... -depth.pdf), but is there a clear text in the IFRS standards that states the requirements/criterias for recognition of the liability on the balance of off it.

IFRS states that :
A liability is a present obligation of the entity to transfer an economic resource as a result of past events.
IAS 39 requires that all financial assets and all financial liabilities be recognised on the balance sheet. IAS 39 requires recognition of a financial asset or a financial liability when, and only when, the entity becomes a party to the contractual provisions of the instrument, subject to the following provisions in respect of regular way purchases.
I could not find more information,
Thank you.
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Crypto assets and liablities

Post by DJP »

Are the crypto assets of different clients commingled in the same wallet/account?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Crypto assets and liablities

Post by Leo »

Hi DJP, what are the nuances, please enlighten me, thank you !

Hi AntonMullo, as DJP asked, what's the type of transactions with those clients, more specifically, what's the counterpart of the accounting entry ?
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Crypto assets and liablities

Post by Marek Muc »

Good question, are you really holding them on behalf of clients, or just hold a net position in your own name
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Crypto assets and liablities

Post by Marek Muc »

Well maybe 'under own name' wasn't the most accurate expression when it comes to crypto assets :lol:
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Crypto assets and liablities

Post by JRSB »

should it be any different to holding cash or any other asset on behalf of someone else, as nominee/custodian whatever
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Crypto assets and liablities

Post by DJP »

The way I see this is not much different from holding cash on behalf of clients. It all comes down to where the crypto assets are being held. I believe -- and correct me if I'm wrong -- each crypto asset does not "have your name on it". They are fungible assets, meaning that you cannot really tell which crypto asset within a wallet belong to whom. What you do is keep a record saying that x amount of crypto assets belong to clients Y and Z. The unit of account is thus the account/wallet where you hold the crypto assets. If you are comingling crypto assets within the same wallet, then you need to determine who controls the wallet. Most likely you control the wallet, thus you need to recognise that asset. You then should keep records (liabilities) of the amounts you owe to each individual client.
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Crypto assets and liablities

Post by Leo »

Thank you DJP !

So I guess the accounting entry would be :

Dt: Inventory/Intangible assets ,
Cr: Other payables

?
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Crypto assets and liablities

Post by DJP »

yup, sounds about right
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Crypto assets and liablities

Post by Marek Muc »

it could be an interesting topic to dig into...

for example, Interactive Brokers, one of the biggest broker that is a public company, shows client assets as their assets:
IB.PNG
https://investors.interactivebrokers.co ... 00&fmt=pdf
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Crypto assets and liablities

Post by Leo »

It happens that I came across an article written by Silvia, where she stated that Cryptos aren't financial instruments :

https://www.cpdbox.com/accounting-crypt ... cies-ifrs/

I guess that's maybe the reason why it shouldn't be classified as a client receivables ?
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Crypto assets and liablities

Post by DJP »

They are definitely not financial instruments. You will book a client receivable in case you buy the crypto asset on behalf of your client.
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Crypto assets and liablities

Post by Leo »

If I understand correctly, if I buy the crypto assets on behalf of my client, it gives me a contractual right to receive cash, hence, it became a financial instrument and recognised as a client receivable. Is that right ?
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Crypto assets and liablities

Post by JRSB »

yes so Dr Receivable Cr Cash (to buy it)
also Dr Crpyto asset Cr assets held on behalf of..
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Crypto assets and liablities

Post by Leo »

Clear thanks JRSB
AntonMullo
Posts: 2
Joined: 11 Feb 2022, 09:46

Re: Crypto assets and liablities

Post by AntonMullo »

Hi guys,
Actually all the EY, PWC guidances day that you should shows both assets and liabilities related to crypto in the balance if you are responsible for it. There is a list of questions/criterias in order to help you decide that.

Are the crypto assets of different clients commingled in the same wallet/account?

I've seen different combinations. Both holding them segregated and not segregated. If not-segregated, there more there is a chance that you have to show them in the balance (according to guidance by Pwc, EY)

The accounting entry most common i've see is> D. Stock (or smohing similiar if crypto is used for operating activity) C Other liabilities ST

But i was wondering - does the IFRS standards states whether liability should be recongised in BS or off it.
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Crypto assets and liablities

Post by Marek Muc »

General principles apply, I think it will be useful to look for general guidance for entities holding clients' funds, e.g. this one:

https://www.grantthornton.global/global ... oint-1.pdf
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Crypto assets and liablities

Post by JRSB »

one for the technical bods but would it be possible to identify/ringfence a specific unit of bitcoin which is held for a specific customer? or just be drawn from a common pool once requested to withdraw?
Post Reply