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Unanswered questions in cryptocurrency accounting

The Bitcoin era has provided both confusion and excitement amongst accountants. As the original cryptocurrency, the value has skyrocketed since its arrival and by its very nature is presenting challenges for accountants, lawyers, tax experts and investors, says CASSL co-chair April Warrier.


April 2018

Bitcoins are digital currency, formed, or ‘mined’, when a complex mathematical algorithm is ‘solved’, often through the use of multiple computers. Their value is derived from those who buy and sell the currency as well as those who invest into Bitcoin mining in exchange for a profit that is paid in Bitcoin (BTC).

But as accountants, the question that we are faced with, is how do we account for it?

Online transactions

The core of Bitcoin is related to the underlying technology, called a ‘blockchain’, which is a decentralised system that allows transactions to be processed outside the regular banking system.

Clearly, there would be difficulties in obtaining third party confirmations for transactions as well as verified bank statements. We can ask to see a client’s online Bitcoin trading accounts, but how can we trust what we are reviewing? These deeper questions remain largely unanswered at present.

A commodity and a currency

Bitcoin can also be treated as an investment. The currency is technically trading 24 hours a day across various exchanges, which makes it difficult to value with no consensus in place around an exact value, especially as the currency is not yet regulated. Which year-end valuation do we trust? What valuation do we use?

The GAAP in Cash v Investment 

The lack of understanding of the currency has been challenging and has led to differentiated treatment of Bitcoin across financial statements in the UK. Reasons for treating the currency as both cash and an investment appear justified, but both impact the net assets of the company differently. For example, choosing to treat an investment under fair value accounting could result in a higher value than that of an initial cash injection. But which one is correct?

Despite limited guidance, it is clear that Bitcoin should be reported. Ultimately, we will have to look to regulators and our employers and large financial institutions for a roadmap on implementing this ‘currency’ into future financial statements.

April Warrier is co-chair of CASSL, the Chartered Accountant Students' Society of London

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