As an emerging issue, guidance on accounting for virtual currency as an investment or as a means of conducting transactions is still in the beginning phases. CPAs who are looking for helpful information may be interested in some of the resources profiled in this month’s column.
The Rise of Using Cryptocurrency in Business
Deloitte offers two “Perspective” webpages on cryptocurrency topics from a business application that include background information and discussion, links to downloadable materials, and “folders” that drill down to additional topic-specific discussions and tools.
The Rise of Using Cryptocurrency in Business: Considering the Benefits of Crypto (https://bit.ly/3Aj8GrB) looks at engaging in transactions using digital assets and provides Deloitte’s perspective on when to use crypto, such as providing access to a new type of customer and a new type of capital. Company use of virtual currency may be as basic as merely accepting customer payments or as sophisticated as pursuing more complicated adoption within its own financing and currency management functions. The topical folders on this page include: considerations for partnering with a third-party vendor, wallets and tracking, anti-money laundering, and choosing or evaluating a vendor or custodial partner.
The longest topical discussion on “The Rise of Using Crypto-currency in Business” is a summary of tax and accounting considerations, addressing the tax treatment of crypto receipts and expenditures, the use of crypto for payroll, accounting for crypto receipts and expenditures, and financial statement disclosure. For tax purposes, the use of virtual currency is considered a barter transaction; value must be established at the time of receipt, and basis must be documented. Making a payment in digital assets triggers gain or loss recognition, so it is important to track cryptocurrency very carefully. On the financial accounting side, receipt of virtual currency from a customer falls under revenue recognition rules for digital assets. The use of cryptocurrency as payment for company expenses has two components—the sale of the currency and the receipt of a good or service for a noncash consideration. On the financial statements, the related accounting policies must be addressed, as well as the impact on various risks and future financial results.
Corporates Investing in Crypto: Considerations Regarding Allocations to Digital Assets (https://bit.ly/3dB7pma) addresses cryptocurrency from an investment viewpoint, including corporate governance and risk tolerance. The topical folders include accounting for digital assets under U.S. GAAP, SEC reporting, tax treatment and challenges from an investment perspective, and cross-border transactions. Because there is no specific guidance on digital assets, accountants need to rely on multiple pronouncements, including ASC 350: Intangibles—Goodwill and Other and ASC 820: Fair Value Measurement. (See the Sidebar, FASB and IRS Cryptocurrency Materials.)
The “Corporates Investing in Crypto” page also provides connections to download two Deloitte reports. “Corporates Using Crypto: Conducting Business with Digital Assets” is an 18-page document that addresses the transaction aspects in more detail than the webpage content discussed above (https://bit.ly/3hbHcfS). “Corporates Investing in Crypto: Considerations Regarding Allocations to Digital Assets” is a 15-page booklet that similarly covers the investing web highlights in more depth (https://bit.ly/363t95S). For web-cast fans, an on-demand one-hour presentation, “Crypto for Business: Tax, Accounting, and Risk Considerations,” provides an overview of issues that arise from investing in crypto, accepting crypto from customers, and using it for expenditures, along with risk and control issues. The webcast is quite interesting; it requires creating an account, but users will also receive the downloadable slides, which contain helpful summary tables that explain digital asset concepts (https://bit.ly/3wcqu4i).
The PricewaterhouseCoopers Viewpoint website (https://viewpoint.pwc.com/us/en.html) presents news, articles, pod-casts, webcasts, and other materials on accounting and reporting topics, SEC reporting, and a variety of hot topics. Although not identified as a hot topic, cryptocurrency does account for three useful resources on the site. “Cryptocurrencies: Time to Consider Plan B” (March 2018) is a short, downloadable article that provides an overview of the characterization of cryptocurrency as an intangible asset under U.S. accounting rules, a discussion of digital tokens and blockchain, a summary of how cryptocurrency fits into U.S. GAAP, and PricewaterhouseCoopers’ support for a fair value measurement model (“Plan B”) as a better representation of the impact of cryptocurrency (https://pwc.to/2Ufgdr4).
PricewaterhouseCoopers offers two 30-minute podcasts related to cryptocurrency issues. “What’s Next in Tech for Finance? Think Blockchain” (December 2020), which discusses the fundamentals of blockchain and how it used in the corporate finance function as a secure place to store distributed data in a central blockchain ledger. (https://pwc.to/3juDH65). “Crytpocurrency? Digital Asset? What’s the Accounting?” (February 2021) provides an explanation of crypto markets and U.S. regulation, the different types of digital assets, the intangible asset model versus the fair value measure, the use of a third-party custodian, and PricewaterhouseCoopers’ perspective on future expectations (https://pwc.to/3AjgkCj).
The AICPA offers several digital asset materials, with and without purchase, from its Digital Asset Resources webpage (https://bit.ly/2TreI8T). “Accounting for and Auditing of Digital Assets” is a 47-page practice aid for users who already have a basic understanding of blockchain. It can be downloaded for free and covers accounting topics such as classification and measurement, recognition and derecognition, third-party hosting, investment companies, broker-dealers, and fair value measurement, as well as audit topics such as auditor and management competencies, overall business strategies, and processes and controls (https://bit.ly/3dBi00a).
Microstrategy.com is a provider of enterprise data analytics for business intelligence and other applications. The company has produced a handy 25-page booklet, “Bitcoin Accounting Treatment and Tax Considerations,” that is available for download on its website (https://bit.ly/3dRpZqn). Because there is no specific authoritative literature, the discussion weaves in various potentially applicable FASB ASC pronouncements, AICPA guidance, and commentary from KPMG and Deloitte. This handy discussion concludes with tax accounting and tax reporting considerations.
FASB and IRS Cryptocurrency Materials
ASC 350: Intangibles—Goodwill and Other (ASU 2019-06)
ASC 820: Fair Value Measurement (ASU 2011-04)
ASC 820: Fair Value Measurement (ASU 2018-13)
ASC 610: Other Income—Gains and Losses from Derecognition of Nonfinancial Assets (ASU 2017-05)
IRS Virtual Currency webpage
IRS Notice 2014-21
Virtual currency treated as property for tax purposes
IRS Revenue Ruling 2019-24
U.S. Dept of Justice: Cryptocurrency: An Enforcement Framework