How Digital Assets and Cryptocurrencies Are Accounted for under IFRS and US GAAP

Bitcoin, Ether, and other digital tokens are now held by corporates (as treasury assets), funds (as investments), and payment platforms (as inventory-like working assets). But neither IFRS nor US GAAP has a dedicated, comprehensive standard that treats cryptocurrencies like cash or financial instruments in most cases. Instead, they are generally accounted for as intangible assets with special measurement and impairment rules — unless you are a broker/dealer or actively trading them as inventory.

This creates two recurring issues in reporting:

1. How do you initially measure and subsequently remeasure crypto holdings

2. How do gains and losses flow through profit or loss (and when)

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How cryptocurrencies are initially recognized

Under both IFRS and US GAAP, crypto assets acquired in a purchase transaction are initially recognized at cost, which includes the purchase price and directly attributable transaction costs.

IFRS view:In most cases, cryptocurrencies meet the definition of an intangible asset under IAS 38 (identifiable, non-monetary, no physical substance). They are not considered “cash” because they are not legal tender, and they are generally not considered “financial assets” because they do not represent a contractual right to receive cash from another party.

US GAAP view (ASC 350):Historically, digital assets have also been treated as indefinite-lived intangible assets (other than certain tokenized securities and tokenized cash equivalents). They are not inventory unless the entity’s business model is to broker or trade them for customers.

Example — purchase of Bitcoin for 2,000,000:

• Debit: Intangible Asset – Digital Assets 2,000,000

• Credit: Cash 2,000,000

If the tokens are mined instead of purchased, additional guidance applies (see “mining and production” below).

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Subsequent measurement under IFRS (IAS 38 and revaluation model)

After initial recognition, IAS 38 allows two models:

1. Cost model

   • Carry the crypto at cost less any accumulated impairment losses.

   • No upward revaluation through profit or loss unless disposed.

   • Impairment losses go to P&L when fair value falls below carrying amount and is not recoverable.

2. Revaluation model

   • Only available if there is an active market with observable prices.

   • Carry the asset at fair value at each reporting date.

   • Increases in fair value are recorded in OCI (revaluation surplus), unless reversing a previous impairment recognized in profit or loss.

   • Decreases in fair value first reduce any existing revaluation surplus in OCI, then hit P&L.

In practice, many entities apply the cost model because they treat crypto as an indefinite-lived intangible and avoid OCI volatility. But some entities argue that major cryptocurrencies (BTC, ETH) have an active market and apply a revaluation approach to better reflect current value.

Impairment trigger example:Carrying amount of ETH holding: 2,000,000Recoverable amount (fair value less costs to sell): 1,700,000→ Impairment loss 300,000

• Debit: Impairment Loss 300,000

• Credit: Intangible Asset – Digital Assets 300,000

Under the cost model, this loss is permanent in carrying value. If the price later rebounds to 2,100,000, IFRS permits reversal of impairment for intangible assets with indefinite life only if you are applying the revaluation model. Under the pure cost model with indefinite life, reversal is not recognized through P&L.

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Subsequent measurement under US GAAP

Historically, US GAAP aligned with IFRS cost model for crypto:

• Digital assets were treated as indefinite-lived intangible assets.

• You tested for impairment when fair value dropped below carrying value.

• You wrote down to fair value.

• You did not write back up if fair value later recovered.

That model created asymmetry: only downside hit earnings. Upside was invisible until sale.

US GAAP has evolved (through recent standard-setting activity from the FASB) toward requiring certain digital assets that meet defined criteria (fungible, not issued by the reporting entity, live on a blockchain, not a security) to be measured at fair value with changes in net income. This fair value model results in:

• Remeasurement to fair value each reporting period.

• All gains and losses in P&L (not OCI).

• Balance sheet classification typically as a separate line within other assets or digital assets, not cash.

Under this new model, crypto behaves more like a market-traded commodity or investment asset than an indefinite-lived intangible.

Example — end of period fair value increase (GAAP fair value model):Initial recognition: 2,000,000End-of-period fair value: 2,300,000Unrealized gain: 300,000

• Debit: Digital Assets 300,000

• Credit: Unrealized Gain on Digital Assets (P&L) 300,000

Similarly, a drop below cost would generate an immediate P&L loss.

This fair value-through-earnings approach significantly increases income statement volatility but also eliminates the “only downside recognized” problem from the legacy intangible model.

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Classification on the balance sheet and cash flow statement

Balance sheet presentation:

• Under IFRS, crypto is normally presented as an intangible asset (non-current) unless actively traded in the ordinary course of business, in which case some entities present it as inventory under IAS 2 (e.g. broker-traders of crypto).

• Under US GAAP, entities now often present a separate digital assets line item within non-current or current assets depending on management intent and liquidity, with accompanying fair value disclosures.

Cash flow statement:

• Cash paid to acquire crypto: typically investing cash outflow (similar to purchase of intangible assets).

• Cash received from selling crypto holdings: typically investing cash inflow.

• For broker/dealer-style businesses that treat crypto like trading inventory, purchases and sales may sit in operating cash flows because inventory movements are operating.

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Special case: broker/dealers, exchanges, and market-makers

When crypto is held for resale in the ordinary course of business, IFRS may allow classification as inventory under IAS 2. In that case, such inventory can be measured at fair value less costs to sell, with changes recognized in profit or loss. That creates symmetry: both increases and decreases go to earnings.

Under US GAAP, broker-dealers and exchanges typically mark trading inventory (including crypto inventory) to fair value through earnings under industry-specific guidance.

This treatment is different from long-term treasury holdings: the same Bitcoin can be inventory for one entity and an intangible asset for another, depending on business model.

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Mining and staking activities

For miners or validators:

• The “output” received (block reward / staking reward) is typically recognized as revenue or other income at its fair value at receipt.

• That fair value becomes the initial carrying amount of the crypto asset acquired.

Example:A miner receives 5 BTC as a reward when BTC trades at 40,000 each → 200,000 total.

• Debit: Digital Assets / Inventory 200,000

• Credit: Revenue / Other Income 200,000

Subsequent measurement then follows the relevant model: fair value through earnings (US GAAP updated model / broker-trader) or intangible asset model (IFRS cost model unless revaluation elected).

Tax accounting (outside scope here) will often diverge sharply from book accounting for mining rewards.

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Disclosure requirements

Both IFRS and US GAAP expect entities holding material crypto positions to provide qualitative and quantitative disclosures to address valuation uncertainty, liquidity risk, and volatility. Typical disclosures include:

• Nature of crypto assets held (e.g., BTC, ETH, stablecoins).

• Carrying amounts and fair values at period-end.

• Method of measurement (cost model vs revaluation vs fair value through earnings).

• Location on the balance sheet.

• Restrictions on use (locked in staking, collateral posted, lending programs).

• Sensitivity to market price changes.

Example disclosure table:

Asset	Carrying Amount (USD)	Measurement Basis	Fair Value (USD)
Bitcoin (BTC)	12,400,000	Fair Value through P&L (GAAP)	12,400,000
Ether (ETH)	5,900,000	Intangible Asset – Cost Model (IFRS)	6,300,000
Staked Tokens	2,100,000	Intangible Asset – Cost Model	2,050,000

This kind of mixed-model disclosure is increasingly common in groups reporting under both IFRS (consolidated) and US GAAP (subsidiaries/registrants), or in multi-GAAP investor decks.

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Journal entries summary

1) Purchase of crypto (both frameworks):

• Debit: Digital Assets / Intangible Asset xx

• Credit: Cash xx

2) Downward remeasurement (IFRS cost model impairment):

• Debit: Impairment Loss xx

• Credit: Digital Assets xx

3) Upward remeasurement (US GAAP fair value model):

• Debit: Digital Assets xx

• Credit: Unrealized Gain on Digital Assets (P&L) xx

4) Sale of crypto for cash:

• Debit: Cash xx

• Credit: Digital Assets xx

• Debit or Credit: Gain/Loss on Disposal xx

5) Mining reward received:

• Debit: Digital Assets xx

• Credit: Revenue / Other Income xx

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Impact on financial performance and ratios

• Earnings volatility: Under US GAAP fair value-through-earnings, crypto introduces direct P&L swings each reporting date. Under IFRS cost model, earnings show only impairments (downside), creating asymmetric volatility.

• Equity volatility: IFRS revaluation model can push unrealized gains into OCI, affecting total equity but not profit.

• Liquidity perception: Crypto holdings may inflate total assets and working capital, but they may not be as liquid in stressed markets as cash or cash equivalents.

• Leverage ratios / covenants: Lenders often haircut or exclude digital assets when testing covenants because of valuation risk.

Analysts increasingly adjust reported EBITDA, net income, and net debt to strip out crypto fair value noise when evaluating core operating performance.

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Operational considerations

To apply IFRS and US GAAP correctly, companies should:

• Decide and document whether crypto is held for treasury/investment, trading, or operations (custody, market-making, settlement).

• Track acquisition lots, timestamps, and cost basis for impairment and fair value calculations.

• Establish valuation hierarchy mapping to IFRS 13 / ASC 820 (e.g., Level 1 for actively traded tokens, Level 3 for illiquid protocol tokens).

• Monitor custody, private key security, and legal ownership — control is critical to recognition.

• Prepare for auditor scrutiny on existence, rights, and valuation cutoffs at period-end.

Clear classification, consistent valuation policy, and robust disclosure allow investors to understand crypto exposure without confusing it for cash or traditional financial instruments.

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