Accounting and Disclosure of Cryptoassets in Japanese Listed Companies and Proposals for Japanese Accounting Standards.

Abstract

The accounting treatment of cryptoassets is based on Practical Solution No. 38 Accounting for Virtual Currencies under the Funds Settlement Act ("Practical Solution"), which was published by the Accounting Standards Board of Japan in 2018.

The PITF was pioneered before the IFRS and US GAAP treatments were presented as 'Tentative Treatment', limiting the purpose of holding cryptoassets to the same as when they are held for trading purposes. At the time the PITF was established, there were few holdings in companies and the accounting standard was based on the assumption that the assets were held for investment purposes. However, this is a different and unique accounting treatment compared to the subsequent IFRS and US GAAP, which account for non-trading purposes as intangible assets, valued at acquisition cost and impaired if the market value falls below the book value. As a result, many foreign listed companies account for them as intangible assets at acquisition cost in accordance with IFRS and US GAAP.

The accounting treatment of cryptoassets in companies in Japan is based on the assumption that they are held for trading purposes, but there are also cases of holding for settlement purposes and other purposes and long-term holdings, and new business models are emerging rather than being standardised, while the number of companies holding cryptoassets in listed companies in Japan is increasing. For new business models, it will be necessary to consider accounting treatment based on the nature of the business model.

In cases where the assets are held for business purposes, such as for payment, or in the case of long-term holdings, it would be necessary to treat them as if they were available for sale, rather than only for trading purposes, in terms of securities. However, if impairment is to be carried out as an intangible asset, as in the US, the existence of unrealised profits that do not appear in the valuation gains on the balance sheet would be undesirable in order to estimate the risk of the company in question. In addition, the amount of impairment may exceed the profit of the company's core business, despite the existence of unrealised profit, and this may not represent the actual situation of the company.

In light of the above, the accounting treatment of cryptoassets shall be divided according to the purpose for which they are held, with trading assets being valued at fair value as before and the relevant gain or loss being treated as profit or loss in the current period, and non-trading assets being newly established and treated as intangible assets, while cryptoassets with an active market are treated as intangible assets, In view of the volatility, it would be preferable to assess them at fair value and not include the relevant gains or losses in profit or loss for the period as other comprehensive income.

Keywords: Crpto Assets, Accounting, Discosure, Japan