The disclosure by holders of crypto-assets will be driven by the disclosure requirements of the IFRS standards that are applied in accounting for them. This narrative illustrates selected disclosure requirements for each classification and measurement in more detail, as well as the general IAS 1 requirements that could be relevant to the holder of crypto-assets.
Holders of crypto-assets need to consider materiality when determining what disclosures are required in their specific circumstances, as well as when to aggregate amounts on the face of the financial statements and in the notes. An entity should not obscure material information with immaterial information or aggregate material items that have different natures or functions as these will reduce the understandability of the financial statements [IAS 1 30A].
Cash and cash equivalents
If, in the future, a crypto-asset were to meet the definition of cash or a cash equivalent (see Classification of crypto-assets LLLIIINMK), the holder would need to consider the presentation and disclosure requirements of IAS 7 and include the movements in the statement of cash flows.
The statement of cash flows excludes movements between items that constitute cash and cash equivalents because these are components of an entity’s cash management, rather than part of its operating, investing and financing activities. Therefore, if a crypto-asset is considered a component of cash or a cash equivalent, movements between other cash balances and the crypto-asset will not form part of the cash flow activities [IAS 7 9].
However, cash transactions relating to crypto-assets that are not considered cash or cash equivalents will be presented as operating, investing or financing activities in the statement of cash flows, depending on their nature.
A holder would also be required to disclose significant non-cash transactions where crypto-assets are used in payment for other goods or services [IAS 7 43].
Holders of crypto-assets that qualify as financial instruments (e.g., financial assets, equity instruments or derivatives) will need to comply with the requirements of IFRS 7 Financial Instruments: Disclosures, including the related fair value and risk disclosures.
Entities that classify crypto-assets as inventory would need to disclose: the carrying amount by class; the entity’s accounting policy for measuring inventory; the amount of inventory recognised as an expense in the period, any write-downs and reversal of write downs to net realisable value that were recognised in profit or loss; and the reason for the reversal [IAS 2 36 – 39].
Commodity broker-traders holding crypto-assets as inventory at fair value less costs to sell, in addition to the general IAS 2 requirements, will need to disclose the carrying amount of such inventories carried at fair value less costs to sell. The IFRS 13 disclosure requirements for recurring fair value measurements would also apply.
There are no specific disclosure requirements for prepayments in IFRS. The holder of crypto-assets classified as prepayments should look to the general guidance provided in IAS 1 in order to determine the appropriate level of disclosure that would be required in the circumstances.
Holders of crypto-assets classified as intangible assets under IAS 38 will need to disclose, by class, a reconciliation between the opening and closing carrying amounts, whether the useful life is assessed as indefinite, and, if so, the reasons supporting the indefinite useful life assessment, and a description of individually material holdings [IAS 38 118 – 123].
Entities that measure intangibles under the revaluation model will also need to disclose, by class, the effective date of the revaluation, a reconciliation of the opening and closing balance of the related revaluation surplus and the carrying amount that would have been recognised had the cost model been applied [IAS 38 124 – 125]. As the revaluation model requires a recurring fair value assessment, the relevant disclosure requirements of IFRS 13 would also apply [IFRS 13 91 – 99].
Additional general disclosures
In addition to the disclosure requirements of the IFRS standard applied for classification and measurement, the holder of crypto-assets will also need to consider the general requirements of IAS 1. A holder of crypto-assets must provide additional disclosures when compliance with the specific requirements of the relevant IFRS is insufficient to enable users to understand the impact of crypto-assets on the entity’s financial position and financial performance.
Paragraph 29 of IAS 1, for example, would require material balances of cryptoassets to be presented separately on the face of the statement of financial position and material gains or losses from transactions in, or revaluation of, such assets to be presented separately in the statement of comprehensive income [IAS 1 55, IAS 1 85 and IAS 1 97].
Due to the unique features and characteristics of crypto-assets, a holder will need to disclose the accounting policies applied and the key judgements made in accounting for different classes of crypto-assets [IAS 1 117 – 122].
Other relevant disclosures that could be useful in evaluating the impact of crypto-assets on the financial performance and financial position of an entity include: the description and quantity of the various crypto-assets held; their historical volatility; and the entity’s reason for holding those particular crypto-assets.
It is worth noting that an entity cannot rectify inappropriate accounting policies by disclosure. For example, an entity would not be able to justify measuring an intangible asset at fair value through profit or loss by disclosing this as their accounting policy and providing additional notes and explanatory material [IAS 1 18].