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Digital assets under IFRS® Accounting Standards vs US GAAP: the basics

Understanding cryptocurrencies and other digital assets and the accounting issues they raise.

From the IFRS Institute – September 6, 2024

Authors: Scott Muir, Nick Tricarichi, Komal Ahuja 

The FASB has issued ASU 2023-081 specifying new subsequent measurement, presentation and disclosure requirements for all digital assets in its scope. The initial measurement, recognition and derecognition requirements for digital assets under US GAAP are unchanged by the ASU. With still only interpretative guidance under IFRS Accounting Standards, differences compared to US GAAP arise. In this article, we level-set on what digital assets and crypto assets are and the key differences in the accounting treatment under IFRS Accounting Standards versus US GAAP (after the adoption of ASU 2023-08).

What are digital and crypto assets?

There are several forms of digital assets that serve various purposes in the digital economy. Terms used in this area are not universally defined and different terms are often used interchangeably. For purposes herein, ‘crypto assets’ or ‘cryptocurrencies’ refers to assets like bitcoin, ether and litecoin. ‘Digital assets’ refers to any asset that resides on a blockchain (or similar distributed ledger technology) and is secured by cryptography. Digital assets include crypto assets, but also include (not exhaustive): security and utility tokens, digital assets that meet the definition of a financial asset or financial instrument (e.g. certain ‘stablecoins’), Central Bank Digital Currencies (CBDCs) and Non-Fungible Tokens (NFTs).

But to get to the right accounting, labelling is much less important than understanding the specific attributes and characteristics of the digital asset in question, who owns it for accounting purposes and the business purpose for owning it.

What are the key differences in accounting for digital assets under US GAAP and IFRS Accounting Standards?

IFRS preparers apply a 2019 IFRS Interpretations Committee (IC) Agenda Decision2, which addresses some accounting considerations when holding cryptocurrencies. The accounting generally depends on the company’s business model (e.g. investors, miners or broker-traders of digital assets) and the characteristics of the digital asset in question (i.e. contractual terms, rights and obligations). Consensus is still forming in many areas, and many issues have not yet been addressed particularly around emerging transaction types such as those characterized as decentralized finance.

Under US GAAP, all digital assets in the scope of Subtopic 350-60, which becomes effective in 20253, will be measured at fair value through net income. We believe this includes bitcoin, ether and many smaller (by market capitalization) crypto assets (e.g. cardano, litecoin, polkadot). ASU 2023-08, which also addresses presentation and disclosure, applies equally to public and private companies; however, certain provisions do not apply to companies applying industry-specific US GAAP (e.g. Topic 946 on investment companies). Read KPMG Defining Issues and Issues In-Depth to learn more.

Here we provide snapshots of three of the most important accounting differences between IFRS Accounting Standards and US GAAP (after the adoption of ASU 2023-08).

Accounting issueIFRS Accounting StandardsUS GAAP

Scoping (i.e. which guidance applies to the digital assets?)

IFRS Accounting Standards do not include a specific standard that addresses digital assets. A company assesses whether a digital asset meets the definition of cash or cash equivalents, financial instruments, inventory or intangible assets by applying the scope requirements in the relevant standards and applying the 2019 IFRS IC Agenda Decision.

The Agenda Decision notes that IAS 2 (inventory) applies to cryptocurrencies when they are held for sale in the ordinary course of business. If IAS 2 is not applicable, then IAS 38 (intangible assets) applies to holdings of cryptocurrencies. For purposes of the Agenda Decision, cryptocurrencies refers to a subset of digital assets with all of the following characteristics:

  • a digital or virtual currency recorded on a distributed ledger that uses cryptography for security;
  • not issued by a jurisdictional authority or other party; and
  • does not give rise to a contract between the holder and another party.

Further, crypto-assets do not meet the definition of cash or cash equivalents because they are generally, among others, not convertible to known amounts of cash, nor are they subject to an insignificant risk of change in value. In addition, a crypto-asset is only an equity instrument under IFRS Accounting Standards if it embodies a contractual right to a residual interest in the net assets of a particular entity.

Subtopic 350-60 (created by ASU 2023-08) applies to all assets that satisfy the following criteria:

  • meet the US GAAP definition of an intangible asset;
  • do not provide the asset holder with enforceable rights to or claims on underlying goods, services or any other asset(s) (the ‘other goods or services criterion’); 
  • reside or are created on a distributed ledger (i.e. blockchain or similar technology); 
  • are secured through cryptography;
  • are fungible; and 
  • are not created or issued by the reporting entity or its related parties.

These criteria appear to have been designed principally to capture crypto assets like bitcoin and ether. However, we believe these criteria will also capture many other crypto assets (e.g. cardano, polkadot, solana and litecoin).

Many digital assets will not be in scope of Subtopic 350-60, for example NFTs because they are not fungible and, frequently , also fail the other goods or services criterion (see KPMG Issues In-Depth, Accounting for nonfungible tokens (NFTs)). Digital assets that are intangible assets but not in scope of Subtopic 350-60 will continue to be accounted for like other intangible assets (i.e. under Subtopic 350-30). 

Summary of key differences:

IFRS Accounting Standards do not include a specific standard that addresses digital assets; therefore, the usual scoping requirements of the relevant standards apply (e.g. IAS 38 and IAS 2). Under these requirements, differences in accounting may arise. For example, unlike IFRS Accounting Standards, which permit intangible assets to be classified as inventory under certain circumstances, US GAAP never permits their classification as inventory (i.e. inventory can only comprise tangible goods). In the next section, we outline key differences between IFRS Accounting Standards and US GAAP with respect to the subsequent measurement of those digital assets. 

Neither the Agenda Decision nor ASU 2023-08 addresses the accounting for all digital assets. For example, neither addresses the accounting for (1) digital assets that meet the definition of a financial asset or financial instrument nor (2) NFTs. Therefore, differences in the accounting for these digital assets may arise because of existing differences between IFRS Accounting Standards and US GAAP (e.g. with respect to financial instruments or licenses of intellectual property).

 

Accounting issueIFRS Accounting StandardsUS GAAP

Subsequent measurement

Under IFRS Accounting Standards:

  • Digital assets classified as intangible assets are typically indefinite-lived and measured after their acquisition at cost less impairment losses. 
  • When digital assets are classified as inventory, but the company is not a broker-trader, they are measured at the lower of cost and net realizable value (NRV).

Otherwise, IFRS Accounting Standards offer two possible routes to fair value subsequent measurement of digital assets classified as intangible assets or inventory:

  • The revaluation model in IAS 384 can be applied as an accounting policy option to intangible assets if an active market exists; however, determining whether an active market exists can be challenging.
  • Broker-traders measure their inventory at fair value less cost to sell under IAS 25.

Digital assets in scope of Subtopic 350-60 are measured at fair value under Topic 820 after their acquisition, with fair value changes recorded in current period earnings (i.e. FVTPL). No exceptions (e.g. for such assets not actively traded) apply.

Digital intangible assets that do not meet all the scoping criteria in Subtopic 350-60 are typically indefinite-lived and, therefore, will continue to be measured after their acquisition at their cost less impairment losses, like other indefinite-lived intangible assets.

Summary of key differences:

The primary difference is that under US GAAP, digital assets in scope of Subtopic 350-60 will be measured at FVTPL while under IFRS Accounting Standards such assets are often measured at cost by either applying IAS 38 or IAS 2.

Other differences include:

  • The revaluation model in IAS 38 can only be applied if there is an active market for the intangible asset. By contrast, digital assets in scope of ASU 2023-08 must be measured at fair value in all cases.
  • While losses under both the IAS 38 revaluation model and Subtopic 350-60 fair value model are recognized through earnings, gains are recognized differently. The net decrease in fair value over the initial cost of the intangible asset is recorded in the Profit or loss. While gains under the revaluation model are recognized in OCI without recycling (unless they are reversing an earlier loss on the same asset) versus through earnings under the Subtopic 350-60 fair value model.
  • Because digital assets cannot be classified as inventory under US GAAP, differences in subsequent measurement will exist for digital assets measured at fair value under Subtopic 350-60 as compared to those measured at the lower of cost or NRV under IAS 2 (i.e. those of entities that are not broker-traders).
  • IAS 36 allows the holder to record an impairment reversal provided the updated carrying amount does not exceed the asset’s original cost less the amortization that would have been recorded had no previous impairment been recognized. While under US GAAP, impairments, once taken, are never reversed, even if the fair value of the crypto intangible asset recovers during the same reporting period.
  • Further, under Subtopic 350-60 does not address operating versus non-operating income statement classification and therefore, existing US GAAP may apply i.e. selling gains and losses should be presented in operating income (loss) based on the presentation guidance in Subtopic 610-20 and remeasurement gains and losses should be presented as operating or nonoperating items based on the entity’s facts and circumstances. Under IFRS Accounting Standards, there is no concept of operating versus non-operating income statement classification and therefore, differences may exist.

 

Accounting issueIFRS Accounting StandardsUS GAAP

Digital assets received as consideration for the sale of goods or services to customers

IFRS Accounting Standards require that noncash consideration received in a revenue transaction generally be measured at the fair value of that consideration. An exception arises only when that fair value cannot be reasonably estimated, in which case the fair value of the goods or services transferred is used .

IFRS Accounting Standards do not specify the date at which to measure the fair value of the noncash consideration. Facts and circumstances are considered to determine whether to measure fair value as of the contract inception date, the date the noncash consideration is received or the date the performance obligation to transfer the good or service is satisfied.

Under US GAAP, noncash consideration received in a revenue transaction6 is measured at fair value, unless that fair value cannot be reasonably estimated, in which case the fair value of the goods or services transferred is used.

Unlike IFRS Accounting Standards, US GAAP specifies the date noncash consideration is to be measured - at the contract inception date.

 

Summary of key differences:

Companies may receive crypto assets as noncash consideration for goods or services transferred. In addition, companies may receive such assets for participating in a blockchain’s consensus protocol (i.e. engaging in mining or staking activities).

The initial accounting for crypto assets received as consideration for goods or services is similar between IFRS Accounting Standards and US GAAP. However, because crypto asset prices can be volatile (even in short periods of time), meaningful measurement differences may arise between:

  • an IFRS Accounting Standards reporting company that measures crypto asset consideration as of the date such consideration is received or the performance obligation is satisfied; and 
  • a US GAAP reporting company that measures the same consideration as of contract inception. 

Besides the above-mentioned differences, another key difference is regarding the disclosure requirements. Subtopic 350-60 for in-scope crypto intangible assets require specific disclosures in both interim and annual reporting period. While under IFRS Accounting Standards, the disclosures are less prescriptive and driven by the requirements of the relevant IFRS Accounting standards that are applied in accounting for them which may result in substantial differences between both GAAPs.

Can we hope for more explicit accounting guidance soon under IFRS Accounting Standards?

Since the IASB’s 2021 agenda consultation, many stakeholders have suggested adding accounting for cryptocurrencies to the IASB’s workplan. However, the Board has not yet done so because of concerns about the prevalence and impact of such transactions, the complexity of accounting for different types of crypto assets and liabilities and the existing guidance provided via the 2019 IFRS IC Agenda Decision on ‘holdings of cryptocurrencies’. That said, the IASB’s project on intangible assets more broadly may review the scope of IAS 38, including the treatment of cryptocurrencies, but we do not expect that project to produce any IFRS Accounting Standards changes in the near-term.

There is presently no indication that the FASB will pursue additional standard setting around crypto or other digital assets anytime soon. Therefore, differences outlined earlier between IFRS Accounting Standards and US GAAP post ASU 2023-08 are not likely to significantly change in the near-term.

Further, the SEC staff have expressed views on other aspects of accounting for digital assets through staff accounting bulletins, statements and speeches. Dual reporters should keep an eye on such views to understand and evaluate potential accounting differences.

Takeaway

Given the recent issuance of authoritative guidance under US GAAP on accounting for and reporting of certain crypto assets, companies reporting under both IFRS Accounting Standards and US GAAP must carefully assess potential divergences. It is imperative for dual reporters to thoroughly evaluate the contrasting requirements between IFRS Accounting Standards and US GAAP to ensure accurate and compliant financial reporting. Read KPMG publications below for further insights:

Start the conversation now with your KPMG representatives.

Footnotes

  1. ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets
  2. IFRS IC Agenda Decision, Holdings of cryptocurrencies, IFRS IC Update June 2019
  3. ASU 2023-08 creates Subtopic 350-60 which will be effective for fiscal years beginning after December 15, 2024, and may be early adopted
  4. IAS 38, Intangible Assets
  5. IAS 2, Inventories
  6. Under US GAAP, some companies conclude that revenue they earn from mining or staking activities is not revenue from a contract with a customer, and therefore apply Topic 606 (revenue from a contract with a customer) only by analogy. See KPMG Hot Topic, Accounting for crypto staking rewards

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Meet our team

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Scott Muir
Partner, Dept. of Professional Practice, KPMG US
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Nick Tricarichi
Partner, Dept. of Professional Practice, KPMG US
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Komal Ahuja
Associate Director, Dept. of Professional Practice, KPMG Global Delivery Center
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Scott Muir
Partner, Dept. of Professional Practice, KPMG US
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Nick Tricarichi
Partner, Dept. of Professional Practice, KPMG US
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Komal Ahuja
Associate Director, Dept. of Professional Practice, KPMG Global Delivery Center
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