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IASB

Development of International Accounting Rules for Cryptoassets Stifled by Lack of Stability, Readiness

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Denise Lugo

The IASB said there is insufficient use, stability and regulation of cryptoassets worldwide and therefore the board will not pursue standard-setting work on the topic unless the marketplace changes.

IASB Chairman Hans Hoogervorst suggested staff accountants keep an eye on Facebook’s Libra, the “stablecoin” it proposed in June 2019, stating if it merged successfully on the global stage the board would need to have a standard-setting answer in place.

“If Libra gets off the ground it would be big, most likely and there’ll have to be – it will be approved by regulators, so it moves out of the more shady areas and then we would have to have an answer I think,” Hoogervorst said during November 20, 2019, board discussions. “It remains to be seen whether it can get off the ground,” he said.

Stablecoins are cryptocurrency-like cryptoassets Facebook says will be backed by cash deposits in a basket of major world currencies and will be recorded on a permissioned database maintained, at least initially, by members of the Libra Association.

Libra has attracted criticism from government ministers and central banks around the world. Concerns raised surround how the Libra Association will ensure compliance with anti-money laundering regulation, provide consumer protection, and protect users’ privacy, according to an IASB staff summary. Other risks raised by some government ministers include systemic financial risks, risks for sovereignty, and the potential for abuse of market dominance.

The board’s interpretations committee suggested stablecoins would apply rules for cash under International Accounting Standard (IAS) 7, Statement of Cash Flows, according to the discussions. Staff accountant told the IASB the board would have to study whether the rules had sufficient guidance regarding cash if Libra becomes more prevalent.

Market Unstable, Unregulated, and Prone to Abuse

IASB members said the cryptoasset topic should continue to be monitored, and periodically staff should continue to bring updates on the matter. In general, staff research identified more IFRS entities with cryptoassets than when the board discussed it a year ago, but the situation had not changed sufficiently for the board to take on a project, board members said.

“I didn’t feel that the landscape had changed and in fact a lot of the material you presented in the paper would reaffirm our decision to just continue watching,” IASB member Ann Tarca said.

“You’ve given us some research evidence that indicates that these markets are unstable, unregulated, evidence of—it looks like market abuse—and consequently legal action around that market abuse. So there doesn’t seem to be any evidence to suggest we should change our monitoring position,” she said.

IASB staff identified instances of securities regulators taking legal action against entities that have issued cryptoassets but failed to register those cryptoassets as securities. In the U.S., the SEC issued complaints against Kik Interactive in June 2019, for example, and Telegram Group and its wholly-owned subsidiary TON Issuer in October 2019.

The IASB has been holding its “wait and see” posture for over a year.

In November 2018, the IASB decided not to add to its work plan a project on holdings and using of cryptoassets. Instead, the Board decided to monitor developments and asked the IFRS Interpretations Committee to consider publishing an agenda decision that would explain how entities apply existing IFRS standards to holdings of cryptocurrencies.

The Committee published an agenda decision on holdings of cryptocurrencies in June 2019. The agenda decision explains that an entity accounts for its holdings of cryptocurrencies as inventory if it holds the cryptocurrencies for sale in the ordinary course of business. If the entity holds cryptocurrencies for another reason, it would account for its holdings as an intangible asset applying International Accounting Standard (IAS) 38, Intangible Assets.

 

This article originally appeared in the December 2, 2019 edition of Accounting & Compliance Alert, available on Checkpoint.

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