Decrypting crypto: implications of potential financial accounting treatments of cryptocurrency

Purpose - The purpose of this paper is to examine potential financial accounting treatments for cryptocurrencies, including the current guidance, and compare the benefits and shortcomings of each method. It proposes the introduction and use of an intangible asset revaluation model. The study aims to inform both standard setters and financial statement preparers of the most appropriate accounting treatment of this digital asset. Design/methodology/approach - This paper uses an exploratory analysis and conceptualizes each technical treatment option. For each potential treatment, this paper describes the technical accounting guidance and financial statement implications. The study also uses an illustration to compare the outcomes of each treatment option. Findings - This paper provides insights into the most appropriate financial accounting treatment of cryptocurrencies. Findings indicate the best option is an intangible asset revaluation model that allows firms to elect a fair value option and record fluctuations in market value to other comprehensive income. This model would improve the accuracy of asset numbers while maintaining the relevance of income amounts by preventing large gains or losses from fair value fluctuations from flowing through the income statement. Research limitations/implications - The number of firms that hold cryptocurrencies on their balance sheet remains small, thus the research is limited to anecdotal and expository analysis. Practical implications - The study includes implications for accounting standard setters as they continue to deliberate the appropriate financial accounting treatment for cryptocurrencies. The study can inform the standard setting process and impact future authoritative guidance. Social implications - The use of cryptocurrency is extremely popular among individual investors and consumers. Updating accounting guidance on crypto can help support a robust crypto market through a useful, informative approach to measurement and reporting. This can also aid in improving the economic prosperity of crypto investors. Originality/value - This paper fulfills an identified need to examine and understand appropriate accounting guidance for cryptocurrencies. Current guidance has been deemed ineffective and there is debate regarding the proper treatment moving forward. This paper contextualizes this debate and provides suggested solutions.