CrypticCurrency: Cryptocurrency with CalCPA's AP&AS Chair.

Cryptocurrency seems to be the financial flavor of recent months, and the IRS is expected to soon release guidance on the topic for the first time since 2014. CalCPA Accounting Principles and Assurance Services (AP&AS) Committee Chair Nancy Rix has been tracking the topic (https://finance.yahoo.com/news/california-cpas-push-cryplo-accounting-183051114.html), pushing for clarity and disclosure rules in the absence of cryptocurrency guidance in US GAAP. We delved a bit deeper with Rix to find out what more CPAs need to know about this hot topic.

Are cryptocurrencies here to stay?

No one can say for sure, but, with regard to the accounting, CalCPA's AP&AS Committee believes that formal U.S. GAAP hasn't yet caught up the expected near term use of cryptocurrencies.

What problems do cryptocurrencies create when it comes to financial reporting?

The fundamental problem is whether one views a cryptocurrency as a medium of exchange or as a store of value--an investment. An entity also may view its cryptocurrencies as inventory, because its holdings resulted from its activities as a dealer--or a "miner" or manufacturer. Entities do not use resources the same way or have the same purpose in holding them.

For example, if an entity acquires a currency in a business transaction as a medium of exchange, under IERS the entity would apply IAS 21, and since cryptocurrencies are not generally accepted as a medium of exchange, any payment received would be treated as a transaction in a foreign exchange.

In another example, if the entity holds a cryptocurrency as a speculative asset, a fair-value model might be appropriate. The primary difference between the fair value and foreign currency examples is one of geography; that is, the location of the reported re-measurement gain or loss. Under the f/x model it would be within net income, under the fair-value method it could be within comprehensive income. Neither of these views is gaining widespread traction under U.S. GAAP or IFRS.

A third view of the appropriate accounting holds that cryptocurrency is not a medium of exchange because a store of value doesn't fit the definition of a financial asset since no corresponding financial liability is created. In this case, the asset would be treated as an intangible at historical cost and then tested periodically for impairment. This impairment model is the accounting that's emerging in the U.S.

There's a final option: the "inventory" view. For a dealer in cryptoassets...