Crypto Accounting Standard

PITF No. 38 Practical Solution on the Accounting for Virtual Currencies under the Payment Services Act

World's First Crypto Accounting Standard?

On March 14, 2018, the ASBJ (Accounting Standards Board of Japan) issued the PITF (Practical Issues Task Force) No. 38 “Practical Solution on the Accounting for Virtual Currencies under the Payment Services Act” (Crypto Accounting Standard).

My understanding is that this is the first stab an official accounting standard setting body has taken in releasing accounting guidance on how cryptos should be treated.

In this article, we aim to provide a summary of the Crypto Accounting Standard.

The numbers in parentheses that appear during the article represent the paragraph number from the original standard.

The original standard refers to cryptos as virtual currencies, so we have used that reference when translating excerpts from the standard.

The Crypto Accounting Standard is applicable to all companies that use crypto and is not limited to crypto exchanges.

It is useful for both preparers and users of financial statements to understand the Crypto Accounting Standard.

I Effective date and Scope

This PITF is effective for the annual period beginning after April 1, 2018.
Early adoption is permitted for the annual and interim period ending after the issuance of this PITF. (18)

The Standard addresses the accounting for virtual currencies as defined in the Payment Services Act, except for those that were issued by the entity itself (including its parent, subsidiaries and affiliates). (3)

II Accounting for Virtual Currencies Held on Its Own Behalf

1 Year end measurement (5-7)

Estimated disposal value: The estimate should be the amount that is certain to be recovered. If such an estimate is not practical, the disposal value is expected to be 0 or a memorandum value. (13)

2 Definition of “Active” Market

When there is a market in which transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis. (8)

Comment by the author: No quantitative thresholds are provided so management would have to use judgement when determining whether a crypto has an active market.

3 The market price of a virtual currency when an active market exists

Transaction price, per virtual currency, at the virtual currency exchange with which the entity has the largest transaction volume (9)

↓ When this exchange is the entity’s own exchange…

The transaction price of the entity’s own exchange can be used for year end measurement, only when it represents fair value. (10)

Comment by the author: The standard requires measurement using the transaction price at the virtual currency exchange in which the entity most frequently transacts with. The standard did not adopt the “principal market” and “most advantageous market” concepts.

4 Change in status of Active Market (11-12)

III Accounting for Virtual Currencies Held by a Virtual Currency Exchange on Behalf of Its Customers

1 Recognition of Assets and Liabilities (14)

An asset is recognized at the market price when a virtual currency is deposited by a customer.

↓ At the same time…

A liability representing an IOU is recorded, measured at the same amount as the asset.