Accounting Guidelines On Cryptocurrency And Tokens-Books Pdf

Accounting Guidelines on Cryptocurrency and Tokens
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Legal aspects The majority of the countries have available legislation that regulates the use of digital. money e g Directive 2009 110 EC in the European Union Transactions in cryptocurrencies are only. in their infancy and majority countries have not made decisions on their legal recognition. Tokens are a sort of cryptocurrencies which aims at ensuring functionality or maintenance of. certain platform or application Examples of such tokens could be Brave coins tokens that are used. in web browser Brave supported by Blockchain Reputation REP tokens whose users may vote for. the results expected in the decentralised Argur platform. Whereas the tokens market is usually rather closed persons willing to sell tokens may sell them. only to individual members of the community willing to buy or exchange them to standard. cryptocurrencies e g Bitcoin Ethereum and etc, Initial Coin Offering or ICO creates a possibility for its promoter to attract funds for the. implementation of the defined project Such distributed tokens depending on the distributor s terms. and conditions defined in the White Paper may be paid by the purchaser in common FIAT money or. in other cryptocurrencies ICO promoter usually creates a possibility for token purchasers to exchange. tokens to other currencies or to sell them to others and carries out administration of the token. maintenance platform, Due to their characteristics such cryptocurrencies as Bitcoin Ethereum RailBlocks Monero are. also called cryptocurrencies coins as they function in separate networks based on Blockchain. principle and usually are used to pay for transactions While tokens issued under ERC 20 or other. similar protocol e g 0x and Civic are created by using already available Ethereum or other. competitive Blockchain they are less often named as cryptocurrencies coins even when they are used. as means of payment because their functionality depends on other Blockchain and are not meant. for implementation of the cryptocurrencies market functioning. Cryptocurrency Other virtual, FIAT money currencies. E money Tokens, Chart 1 Cryptocurrencies and tokens as compared with other virtual money. Tokens are used following the established conditions of the release of the measure granting to its. holder the rights set by the promoter e g the right to receive a part of the company s profits income. interest on invested funds the right to receive certain goods or services and etc. Due to this characteristic the following several types of tokens are distinguished. Payment Tokens are tokens designed for execution of payments between their holders within. the community of the issuing company Such tokens may be used as cryptocurrencies coins and their. value usually depends on confidence in the issuing company They also may be used for future. purchase of services of the issuing company under precondition that due to increasing confidence in. issuing company their value will significantly increase and thus the first purchasers of tokens will. obtain economic benefits Payment tokens do not grant other substantive rights to their purchaser. therefore for the issuing company may serve an instrument to cover Blockchain creation costs. ensuring the functioning of such tokens and to finance other activities of the company without. assuming direct legal obligations against the investors purchasing them. Utility Tokens grant a possibility for their holder to use goods or services accessible only on the. network of the issuer of such tokens For instance the issuer of Filecoin tokens plans to provide. decentralised cloud storage service which will allow to use the unused hard disk memory available. in other computers ICO purchasers received tokens that can be used for payment for Filecoin storage. services when the service is launched Whereas the supply of utility tokens is usually of fixed volume. the value of these tokens may grow in the future if the demand for services rendered on their basis. One type of utility tokens is called Asset Tokens tokens designated to acquire a real product or. asset in the future For instance a TV token may grant a possibility for its holder to obtain or. purchase at a lower price a new generation TV set planned to be issued by the token distributor Such. type tokens are fairly widely exploited however investors often elude from acquisition of such. tokens as asset that they will be able to acquire for them in the future and asset tokens related to its. value may lose their value if a long period of time passes between the issue of tokens and a possibility. of using them, Securities Tokens is a broadly defined type of tokens that grants the right to assets held for trade.
or grants a possibility of getting a pre defined financial benefit interest or etc The promoters of. such tokens may be committed to exchange them into precious metals or to take out the mortgage. against the real estate as a guarantee of their value Usually the countries for such tokens apply. legislation regulating securities and they are the most strictly regulated as compared with other types. of tokens One type of utility tokens is called Equity Tokens that grant the right to their holder to the. share of the company s profit In this they are like equity instruments therefore the more people. purchase them the more they grow in value Though they are not recognised as equity e g shares. they offer a possibility of attracting fixed capital in more flexible manner and may create new business. management models, 2 Evaluation of cryptocurrencies used as payment means according to. Business Accounting Standards, As legal regulation of cryptocurrencies is pending all online payment units should be accounted. for in accordance with their economic benefits Paragraph 28 of Business Accounting Standard 1. Financial reporting indicates that a company has to select and to apply such an accounting policy. that financial statements would correctly specify the financial position of the company outcomes of. activities and cash flows A company should set the accounting rules of a cryptocurrency in its. accounting policy with regard to which balance sheet item the cryptocurrencies should be attributed. to its economic sense measured according to the terms and conditions specified in the White Paper. probability of economic benefits or liabilities, According to the provisions of paragraph 24 of BAS 182 financial assets should be accounted. for only in case when a company receives or under the contract acquires the right to receive cash or. other financial assets The acquisition cost of the financial assets includes also direct transaction costs. Business Accounting Standard 18 Financial assets and financial liabilities. Before attributing cryptocurrencies to financial assets it is important to identify the extent these. means comply with the definition of financial assets. Paragraph 4 of BAS 18 establishes the following definition of financial assets. 4 Financial assets shall include, 4 1 Cash in the company s cash reserves and settlement accounts. 4 2 Cash equivalents Cash equivalents may be short term up to three months from the. acquisition date liquid investments to securities with the exception of equity instruments travellers. checks and other financial assets that may be quickly exchanged to a known amount of cash the risk. of changes in value of which is insignificant, 4 3 The contractual right of a company to receive cash or other financial assets exchange.
financial assets or financial liabilities which in financial statements is indicated as gains from sales. of production services rendered or loans prepaid amounts for financial assets and other financial. company debts accounted for under contracts, 4 4 Securities issued by other economic entities shares bonds and other securities purchased. to achieve economic benefits, Cryptocurrencies of which particularly called cryptocurrencies coins may be used as payment. means not only for payment for services rendered but also to exchange sell into common currency. FIAT money or store for a sale in anticipation of the growth of its value By nature cryptocurrencies. despite their incorporeality have the same characteristics as foreign currency therefore they could. be attributed to cash Presence of cryptocurrencies is confirmed with a private key granted only to. their holder which has to comply with a public key of this cryptocurrency known to others A private. key is stored in the crypto wallet of the holder s media device computer mobile phone and etc or. may be printed out and stored in a hard copy e g produced on paper Brokers acting in the. cryptocurrencies market may assist their purchaser in acquiring cryptocurrencies indirectly by. opening the account for each purchaser for storage of cryptocurrencies acquired by the purchaser In. this aspect these payment means are also similar to cash held on settlement account as in current. financial markets the holder of common FIAT money often stores it also on electronic accounts. opened by a financial institution intermediary or a distributor of electronic money for this purpose. Cryptocurrencies coins may also have characteristics of cash equivalents as they similarly as. liquid investments or other financial assets may be quickly exchanged into known cash amounts The. only handicap for their recognition as cash equivalents is a significant risk of change in their value. as considerable changes in value of cryptocurrencies currently are often observed as compared to the. value of common currencies However it can be concluded that after the risk of change in value. diminishes this type of virtual currency could be equated also to cash equivalents if it would be. possible to transfer them quickly in the market without high additional costs. Under further assessment these payment means do not meet the requirements laid down in. paragraph 4 3 of BAS 18 as at present there is no clearly expressed contract on the right to receive. or to exchange financial assets Transactions in cryptocurrencies are made following the protocol. applicable to a specific Blockchain and the approval of individual transactions is accrued out through. decentralised register but not on the basis of the contract It is also call into question whether. cryptocurrencies as payment means are in conformity with the provisions of paragraph 4 4 as they. are not securities However knowing that often such financial assets as investment and pension fund. units participant s contributions in crowdfunding financing platforms and etc are attributed to this. category it is debatable whether the acquisition of cryptocurrencies to achieve economic benefits. e g analogically as in case of acquisition of listed shares on securities market or derivatives is not. identical The cryptocurrency acquired if the investor intends to store it for a long period of time. expecting the growth of its value has all essential characteristics attributable to such financial assets. Stating that cryptocurrencies used as payment means are attributable to financial assets it is. necessary to evaluate what accounting method could be used when recognising them in financial. statements BAS 18 excludes two accounting methods fair value and amortized cost method The. latter accounting method is applicable when financial assets are held to maturity and it is possible to. uniformly distribute future economic benefits during this assets eligibility period. Whereas cryptocurrencies as payment means usually are not held to maturity and such a maturity. is not established in the Blockchain protocol it may be assumed that the amortised cost accounting. method cannot be applied to accounting of such cryptocurrencies. While the fair value accounting method is applied to other financial assets therefore it could be. applied also to accounting of cryptocurrencies Evaluating such assets by fair value on the date of. financial statements which would depend on a specific value of cryptocurrency well established in. cryptocurrencies markets it would possible to reflect the real change in value of such payment means. during the reporting period as according to BAS it should be indicated directly in the profits loss. statement This would help to reflect a real and correct company s financial situation at the end of the. reporting period as despite a limited legal recognition of cryptocurrencies and occurring set. restrictions on their exchange into common FIAT money usually it is possible to exchange this. cryptocurrencies coins into other cryptocurrency or common currency quickly and without significant. additional costs, However it should be noted that not all cryptocurrencies are liquid and can be quickly sold. through cryptocurrency exchanges or otherwise be transferred More steady and liquid. cryptocurrencies market is specific only to the largest in capitalisation cryptocurrencies e g Bitcoin. Ethereum Ripple Bitcoin Cash Litecoin and etc Other cryptocurrencies are often not liquid cannot. be directly transferred for common FIAT money and may be only exchanged to other. cryptocurrencies In such situation designation of a cryptocurrency as at fair value may be hardly. possible as on designation date the established market price on the market may not exist Paragraph. 33 of BAS 18 provides for that available for sale investments to securities whose price on active. market is not announced and whose fair value cannot be measured should be evaluated in financial. statements at acquisition cost minus impairment amount Therefore cryptocurrencies that are not. Accounting Guidelines on Cryptocurrency and Tokens 1 Introduction Definition of a cryptocurrency and tokens A cryptocurrency is usually defined as a virtual currency having itself characteristics of electronic money hereinafter referred to as e money so called digital money Electronic money and they issuance are regulated by the Law on electronic money and electronic money

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