Cryptocurrencies in Financial Statements

In February this year, Tesla announced the purchase of the $1.5 billion bitcoin cryptocurrency, this as part of its portfolio diversification, which led the world to look at these virtual securities as a form of investment in the quest to grow its money, with this said, the need to register these investments as part of accounting has caused many doubts and concerns about the proper treatment of these Investments.

One of the biggest problems when registering for Cryptocurrencies is defining the treatment to be given to cryptocurrency investments. On the other hand, The CINIF (Mexican Council of Financial Reporting Standards), issued IFRS C-22, which serves as an appropriate guide to recognize Cryptocurrencies in the financial statements of entities.

According to the above-mentioned IFR, cryptocurrencies are not considered as cash, as this is not legal currency and is therefore not supported by any central bank or by the government of the country in which it is exchanged or traded. It is also not considered cash equivalent, because it is not easily convertible into cash; in addition to not being considered as a financial instrument, because although for an entity that has an investment in cryptocurrencies it represents a right with an economic value, there is no obligatory counterparty with that entity to liquidate its value or respond for such liquidation.

It is also clarified that it should not be considered as inventory, because although a cryptocurrency could be kept for sale purposes, it would not be appropriate to recognize it in accounting based on the NIF of inventories given that it should be valued at the lower of its acquisition cost and its net value realization, this latter being a value determined by the entity itself based on internal factors; that is, this NIF considers that the acquisition cost and net realized value would not represent the recovery value of a cryptocurrency, since it is traded on the basis of market prices (fair value).

Therefore, when an entity acquires cryptocurrencies for investment purposes, the processing of a virtual asset will be given, which must have an initial valuation at the time of acquisition, as well as, at the date of submission of the financial statements, be worth the cryptocurrencies at a fair value (NIF B-17). In the event of the acquisition of any good or service paid for with cryptocurrencies, it must be recognized based on the functional currency of the entity based on the fair value at the date of the transaction.

The entity must present in its financial statement its cryptocurrency investment in a specific area and separate it from the rest of the assets, as a short-term asset. The effect of investment valuation should be presented in the comprehensive income statement and finally present as part of the statement of cash flow transactions carried out with cryptocurrencies in trading activities.

Finally, the entity should keep in mind that it is of crucial importance to reveal about each type of cryptocurrency that owns the following:

  • Name of the cryptocurrency.
  • The number of units.
  • The fair value per unit.
  • The total amount recognized in books.
  • The amount of the period recognized for its fair value valuation.

It is important to keep in mind that even if the forms established by IFRS C-22 mentioned above are met, each of the cases and situations of what a company can deal with when investing in cryptocurrencies, this being an expanding market and Mexico one of the top 10 countries that makes use of these, according to Statista Global Consumer Survey, shows the area of opportunity that they generated in the accounting landscape.

Author: Rodolfo Curiel Gómez