Republic of the Philippines

CAVITE STATE UNIVERSITY

Don Severino de las Alas Campus
Indang, Cavite
(046) 415-0010 (046)415-0012
E-mail Address: cvsu@asia.com

COLLEGE OF ECONOMICS, MANAGEMENT

AND DEVELOPMENT STUDIES
Department of Accountancy

Revolutionizing the Field of Accountancy

through Cryptocurrency

Submitted to:
Mrs. Ludivinia F. Victorino, CPA, MBA

Submitted by:
Vincent Allen Paul S. Bitanga
Junnalyn J. Burzon
Mary Ann L. Cruzat
Jessarene Pearl F. Depante
BSACC 5-1
 TABLE OF CONTENTS
Title Page i
Table of Contents ii
Introduction 1
I. Nature of Cryptocurrency 2
II. Risks and Rewards of Cryptocurrency 5
III. The Implication of Cryptocurrency to the Field of Accountancy 9
IV. The Future of Cryptocurrency 16
 INTRODUCTION
Aside from monitoring social media updates and playing mobile games,
Filipino finance aficionados and tech-savvy millennials are also hooked into the
highs and lows of virtual or digital currencies. Virtual currencies were
traditionally used by players of online games. Later on, Satoshi Nakamoto,
introduced “Bitcoin” as a “peer-to-peer version of electronic cash” that allows for
fast and cheap digital transactions independent of third-party financial
institutions. In a nutshell, these so-called “virtual or digital currencies” may be
acquired using fiat money and be converted back to fiat money or be used for
payment or remittance.

As of date, Bitcoin is the most widely used virtual currency. The

technological backbone of the bitcoin currency is the so-called blockchain—a
data structure that allows a network of computers to share between them a
tamper-proof digital ledger of transactions known as cryptography. Through the
blockchain, codes are entered into the ledger to track the ownership of the
bitcoin without the need for a central authority, thereby fast-tracking
transactions, while lowering fraud and maintaining the anonymity of the bitcoin
owner. The bitcoin came into existence sometime in January 2009 with the
issuance of the bitcoins.

As future stewards in the business world, it is just appropriate for us,

Accountancy students, to catch a glimpse and even divulge into this emerging
world of Cryptocurrency. It will be helpful to study its nature, how it works, as
well as its advantages and disadvantages to the economy. What is more
necessary is to understand its implication to the profession that we chose to take
a path on to. This paper aims to showcase the current state of Cryptocurrency in
the Philippines as well the role of the Accountants in the foreseeable fate that it
might end up.
 2

I. Nature of Cryptocurrency
A cryptocurrency is a digital or virtual currency that uses cryptography
for security. A cryptocurrency is difficult to counterfeit because of this security
feature. Many cryptocurrencies are decentralized systems based on blockchain
technology, a distributed ledger enforced by a disparate network of computers. A
defining feature of a cryptocurrency, and arguably its biggest allure, is its organic
nature; it is not issued by any central authority, rendering it theoretically
immune to government interference or manipulation.

The first blockchain-based cryptocurrency was Bitcoin, which still

remains the most popular and most valuable. Today, there are thousands of
alternate cryptocurrencies with various functions or specifications. Some of
these are clones of Bitcoin while others are forks, or new cryptocurrencies that
split off from an already existing one.

Cryptocurrencies are systems that allow for the secure payments of

online transactions that are denominated in terms of a virtual "token,"
representing ledger entries internal to the system itself. "Crypto" refers to the
fact that various encryption algorithms and cryptographic techniques, such as
elliptical curve encryption, public-private key pairs, and hashing functions, are
employed.

The first cryptocurrency to capture the public imagination was Bitcoin,

which was launched in 2009 by an individual or group known under the
pseudonym, Satoshi Nakamoto. As of October 2018, there were over 17.33
million bitcoins in circulation with a total market value of around $115 billion
(although the market price of bitcoin can fluctuate quite a bit). Bitcoin's success
has spawned a number of competing cryptocurrencies, known as "altcoins" such
as Litecoin, Namecoin and Peercoin, as well as Ethereum, EOS, and Cardano.
Today, there are literally thousands of cryptocurrencies in existence; with an
aggregate market value of over $200 billion (Bitcoin currently represents more
than 50% of the total value).

Cryptocurrency benefits

Cryptocurrencies hold the promise of making it easier to transfer funds

directly between two parties in a transaction, without the need for a trusted
third party such as a bank or credit card company; these transfers are facilitated
through the use of public keys and private keys for security purposes. In modern
cryptocurrency systems, a user's "wallet," or account address, has the public key,
and the private key is used to sign transactions. Fund transfers are done with
minimal processing fees, allowing users to avoid the steep fees charged by most
banks and financial institutions for wire transfers.
 3

Financial technology innovations that could well benefit the 'unbanked'

and others who would benefit from greater access to capital could well be
stymied by well-intended regulations in the Philippines.

Bitcoin Peso

“Bitcoin” has been the newest buzzword in the financial and legal circles
in the past few years. We often hear of people generating significant amounts of
money from investments in Bitcoin, and at the same time people losing money
when the value of Bitcoin drops dramatically within a single day of trading.

Bitcoin is essentially a virtual currency (VC). VC is any type of digital unit

that is used as a medium of exchange — a veritable currency that exists in the
digital world. Since it is electronic currency, VC is easily transferable and can be
used to pay for goods and services sold through the Internet. VC transfers could
be made with nominal processing fees as they do not require a lot of facilities
and intermediaries.

Bitcoins may be purchased from an online exchange, and then traded

from one personal “wallet” to the other. This wallet is a small database that you
can download and store on your mobile phone or computer. Each wallet is
anonymous since neither names nor personal information is exchanged, which
safeguards its users from identity theft.

When bitcoin is transferred between different wallets, each transaction is

added to a shared public ledger or blockchain which is available to every
computer in the network. This ledger is made public to prevent fraud, and
protected by cryptography.

As such, VCs may have a significant impact on the way that ordinary
Filipinos do commercial transactions. First, OFWs who send remittances to the
Philippines may benefit from the VC’s minimal processing fees. Second,
according to the Bangko Sentral ng Pilipinas (BSP), 86% of Filipino households
does not have bank accounts due to lack of sufficient capital and proper
identification requirements. The 86% will now have access to the facilities of VC
exchanges which do not require such capital or identification requirements.
Third, being the fastest-growing smart phone market in the ASEAN with over 40
million Internet users, the Philippine economy will definitely benefit from
increased mobile commercial transactions.

Unlike cash, however, VC is neither issued nor guaranteed by a central

bank, nor backed by any commodity. The value of VC depends solely on its
supply and demand and the integrity of its system. Clearly, VC collides with the
current monetary system that is in place all over the world.
 4

The Philippines is a developing and promising country in terms of the

blockchain technology. It has numerous DLT-based start-ups and its own
cryptocurrency for alternative financial transactions. More than that, the country
has recently issued licences to 25 crypto exchanges to operate in the Cagayan
Economic Zone Authority (CEZA).

Crypto Taxation

The National Internal Revenue Code (NIRC) states that any income of an
individual or corporation, in whatever form, obtained in the Philippines, is
taxable in general. Thus, depending on the type of cryptocurrency transactions,
the Philippine Bureau of Internal Revenue (BIR) may impose an income,
percentage, or other business tax under the NIRC regulation.

The BIR has not presented any clear rules on the taxation of BTC
transactions yet. However, looking at the internal revenue laws, one may know
that any type of income earned shall be taxed unless expressly exempted.

The taxes collected may potentially depend on how the BIR will decide to
classify BTCs. If crypto coins are considered property, they will come under the
capital gains tax.

However, if BTC transactions are taxed as stocks, a fixed percentage tax

may also be imposed. Then, the income from mining shall be considered as well.

The BIR may treat crypto coins as securities, as Securities and Exchange
Commission (SEC) does, therefore, they will be taxed as securities as well.

It is likely that fintech companies currently fall under the taxation rules of
any other corporation; therefore, they are subject to regular income tax based on
net taxable income at the rate of 30%.

Although there are no clear guidelines on crypto taxation in the

Philippines, the country’s officials are working on the regulations of crypto
exchanges and ICOs.

Crypto Exchanges

The Central Bank of Philippines, the Bangko Sentral ng Pilipinas (BSP),

issued Circular 944 – Guidelines for Virtual Currency Exchanges – in February
2017. According to the document, virtual currency exchanges have to get the
Certificate of Registration (COR) to operate legally.

They should also go through the adopted registration procedures and

submit all the necessary documents to the BSP.
 5

The document states that the Bangko Sentral does not plan to perceive
any virtual currency, such as BTC, as a currency, since it is not issued or
guaranteed by the BSP and not backed by any commodity. The BSP intends to
regulate virtual currencies used in financial services such as payments and
remittances.

The document defines virtual currency as a type of digital unit that “is
used as a medium of exchange or a form of digitally stored value created by
agreement within the community of VC users.”

II. Risks and Rewards of Cryptocurrency

Cryptocurrencies are becoming popular these days because they
are easy to use and trade, and are more secure, fast and decentralized.
Cryptocurrencies are bringing evolutionary changes in the payment
 6

system, but everything on Earth has pros and cons. Hence, embracing the
nature of the cryptocurrency both calls for rewards and risks.

The following are the rewards or advantages of cryptocurrency.

 Easy to Use

The procedure for opening a simple bank account includes

asking for several documents and identifications. If there are any
mistakes in those documents, the bank will refuse to open an
account for you. Also, accessing your funds in different
geographical location is a little bit hard.

In the case of cryptocurrency, one just need a device that is

able to access the internet. Through this, one can create his/her
wallet and use where ever and whenever it is wanted and needed.

 Decentralization

It is known that most of the cryptocurrencies have no

central authority to control, the network is distributed to all
participants, and each computer mining nodes is a member of this
system.

This means that the central authority has no power to

dictate rules for owners of coins. And even if some part of the
network goes offline, the payment system will continue to operate
stably.

 It Can Be Used Internationally

When talking about transactions using cryptocurrencies,

there are no limits. A sender may be in a different part of the
world and the receiver might be in some other hemisphere, but
they can still transfer the amount without any hassle.

Also, coins cannot be faked, copied or spent twice. These

capabilities guarantee the integrity of the entire system. Every
month the number of online shops, resources, and companies to
accept BTC is expanding.

 Low Operation Cost

Transferring money by using any other online forum or bank

gateway is expensive as they levy considerable fees for the
transaction.
 7

If one transfers crypto, there will be no need to pay

commission and fees to banks and other organizations. This does
not mean that cryptocurrencies are free for transactions. Crypto is
charging a very small amount of the tran saction as a fee, and in
cryptos, it is the buyer who will shoulder the small fee.

The issue with these fees is that they often pile up and could
quickly pile up. Transaction fees are very small and only the buyer
gets hit with it.

 Do Unlimited Transactions

In cryptocurrencies, one can pay using their wallet to

anyone, anywhere and in any amount. The transaction cannot be
controlled or prevented, so one can make transfers anywhere in
the world wherever another user with a crypto wallet is located.

 Fast Transactions

With cryptos, one doesn’t need to wait a couple days for

their business to receive the money. Cryptocurrencies are based
on the blockchain technology which removes delays, payment of
fees and is a host of other third party approval that might have
been present.

 Transparency

In cryptocurrency, every transaction is recorded on the

blockchain. The blockchain keeps information about everything.

If anyone has publicly used the crypto address, then anyone

can see how much crypto is owned. If the address is not publicly
confirmed, then no one will ever know that it belongs to someone.

 Anonymity

In cryptocurrencies, one is able to create an infinite number

of wallets without reference to the name, address or any other
information.

 Highly-Secured

All the transactions will be secure as it is using

cryptography. It is next to impossible for any person other than
the owner of the wallet to make any payment from the wallet
 8

unless they were hacked. There were many ways to protect one’s
account.

 No Inflation

Coins are limited to use and mine in cryptocurrencies

therefore neither political forces nor corporations are able to
change this order. There is no possibility for development of
inflation in the system.

 Peer-to-Peer Cryptocurrency Network

Cryptocurrencies do not have any master server to manage

all transactions. Exchange of information is between 2-3 or more
software clients. All program-wallets installed by users are part of
a crypto network.

Each client stores a record of all committed transactions and

the number of crypto in each wallet. Transactions are made by
hundreds of distributed servers. Neither banks nor taxes nor
governments can control the exchange of money between.

The following are the risks or disadvantages of cryptocurrency:

 Lack of Knowledge

Most people are not aware of how to use cryptocurrency and

hence open themselves to the hacker. The digital currency
technology is somewhat complex and therefor e one needs to be
mindful of it before investing.

 Strong Volatility

Since the beginnings, cryptocurrencies have a highly-volatile

nature. This is one of the main reasons why mass adoption is
taking longer than it should. Many corporations don’t want to deal
with a form of money that is going to go through huge swings in
volatility.

 Large Risks of Investing in Cryptocurrency

Crypto investments involve high risk because of its volatile

nature and terrorist and other illegal activity financings, lack of a
 9

central issuer, which means that there is no legal formal entity to

guaranty in case of any bankruptcy.

 Not Able to Reverse the Payment

If one mistakenly pay someone by using cryptocurrency,

then there is no way to get a refund of the amount paid. All that is
possible to do is to ask the person for a refund and if the request is
turned down, then just forget about the money.

 Storing of Cryptocurrencies

If one have stored digital currency on his/her phone or

computer, they should remember the password and not lose those
devices. Losing the coins means one won’t be able to retrieve it.

III. The Implication of Cryptocurrency to the Field of

Accountancy
Is bitcoin a currency?

In the Philippines, the increase in the volume of bitcoin transactions to

around $6 million per month has caught the attention of the Bangko Sentral ng
Pilipinas (BSP). Bitcoin is also gaining popularity among Overseas Filipino
Workers (OFWs) as they began using it for their remittances to the country to
avoid onerous remittance charges. Banks, such as the Bank of the Philippine
Islands and Banco De Oro Unibank; and even 7-Eleven convenience stores are
now into bitcoins transactions. Several platforms such as coins.ph, buybitcoin.ph,
and rebit.ph are Filipino mainstays acting as bitcoin brokers to facilitate its
transactions. The value of a bitcoin is very volatile, as it depends on the supply
and demand of bitcoins. Its value changes every second, as this is dictated by the
market. The virtual currency’s value has recently increased, as many become
hooked on bitcoins, thereby increasing its demand.

On February 6, 2017, the BSP finally broke its silence and issued BSP
Circular No. 944, where it categorically declared that virtual currencies,
including bitcoin, is not a currency, since it is neither guaranteed by a central
bank nor backed by any commodity. The BSP, however, provided guidelines on
regulating virtual currencies for the delivery of financial services, particularly for
payments and remittances. These guidelines could have a material impact on
anti-money laundering and combating the financing of terrorism, consumer
protection, and financial stability. A closer look at BSP Circular No. 944 reveals
that the Philippines does not intend to prohibit bitcoins, although the said
 10

regulation diminishes the anonymity of the bitcoin owner for relatively valid
reasons. Hence, there is need for a special law, at the least a regulation by our tax
authorities.

BIR’s silent treatment of the bitcoin craze

One may purchase a bitcoin to speculate the increase of its value and
convert it to fiat currency at a gain, others merely use bitcoins for payment and
remittance. The fact that its value changes every second gives an air of
excitement. There is a catch, though: it is not backed by a commodity or a
tangible object, unlike stocks or bonds. A bitcoin’s valuation is entirely dictated
by the market. As Warren Buffett puts it, bitcoin is a bubble. It cannot be deemed
a real investment, because it is not backed up by any tangible commodity.

However, it is undeniable that gains or profit may be realized just by

speculating an increase in the value of a bitcoin and then converting it to fiat
money. To date, the Bureau of Internal Revenue (BIR) has not yet issued any
regulation or circular to ascertain the taxability of a bitcoin transaction.

In the US, the Internal Revenue Service has already issued regulations
treating bitcoins and similar convertible virtual currencies as “property.” As with
other types of property, first, one acquires property, often by exchanging cash for
the property. Then, one owns the property for a period of time. Eventually, one
might sell, give away, trade, or dispose of the property. As such, income upon the
disposition of the “property” is subject to tax, depending on its holding period if
long-term or short-term. Under this treatment, verifiable documentation from
the acquisition to the disposition stage is a must.

In Canada, the Canada Revenue Agency (CRA) treats bitcoin—and digital

currencies generally—as a commodity for income-tax purposes. As a result,
bitcoin transactions are subject to the same rules as barter transactions, i.e.,
transactions where one commodity is exchanged for another. Under this
treatment, the income or loss from a bitcoin or other convertible virtual currency
transaction would be treated as either (1) income or loss from business or
property or (2) capital gains or loss.

According to the CRA, vendors accepting bitcoins must record the fair
market value of the bitcoin upon receipt and be subjected to the business income
tax. On the other hand, those that use bitcoins for trading, investing, and
speculating may straddle the line between income and capital, which continues
to be a gray area. In Japan, bitcoins and other digital currencies are defined as
“asset-like values that can be used in making payments and can be transferred
digitally.” Initially, Japan subjected bitcoin transactions to 8% consumption tax
and applicable capital gains tax. Effective July 1, 2017, however, the Japanese
 11

government has lifted the consumption tax to bitcoins, but retained the
applicable capital gains tax.

Bitcoins around existing local laws

Under Article 1305 of the Civil Code of the Philippines, a “contract” is a

meeting of minds between two persons, whereby one binds himself with respect
to the other to give something or to render some service. Bitcoin transactions
could be classified as an innominate contract or that which has no specific name
or designation under the law. Hence, unless a law is passed prohibiting bitcoin
transactions, it cannot be considered invalid simply because it is virtual and does
not conform to the strict standards of contracts under the Civil Code.

One major hurdle that needs to be addressed by regulators is the

anonymity of bitcoin owners, as ownership tracking is done through codes and
not to mention the fact that there is no governing authority for bitcoins and other
virtual currencies. Bitcoin is a type of cryptocurrency. As such, a bitcoin
transaction may be short of an enforceable contract through legal proceedings.

For one to commence legal action against another party, one has to know
the whereabouts of the other i.e., the name and address, among others. In a
bitcoin transaction, such is not the case. A bitcoin transaction could only amount
to a moral or social agreement, which cannot be enforced by court action, unless
a special law is passed to regulate the said transaction. Some bitcoin platforms,
such as coins.ph, require the bitcoin owner’s personal profile pursuant to know-
your-customer rules.

If a bitcoin transaction could give rise to a contract, it becomes necessary

to ascertain if a bitcoin, being virtual, may be considered property. Article 417 of
our Civil Code provides that “obligations and actions which have for their object
movables or demandable sums” are considered personal property. If a bitcoin
transaction gives rise to an obligation or action for a demandable sum, then it
can be considered personal property. Bearing in mind the elements of a taxable
income— (1) there must be gain or profit; (2) the gain or profit is realized or
received, actually or constructively; and (3) it is not exempted by law or treaty
from income tax—it is expected that the BIR could at least come up with a
circular on its position on the taxability of bitcoins and other digital currencies.

With the recent “build, build, build” thrust of the administration comes
the need for internal funds. While everyone is busy finalizing tax reforms,
legislators and regulators might want to consider regulating bitcoin transactions
to effectively subject it to tax. After all, the power of taxation being an inherent
power of the state is universal. For reference purposes, the BIR might be
 12

interested in looking at the tax treatment being used by the US, Canada, and
Japan.

Accounting Issues

Existing IFRS Standards do not explicitly refer to cryptocurrencies. The

primary accounting questions are whether cryptocurrencies are assets and, if so,
what type of asset in terms of IFRS Standards? As previously noted, there are
over 1,500 cryptocurrencies and more are being developed. Different
cryptocurrencies can have different characteristics, and the reasons for acquiring
them can vary, resulting in different accounting consequences. As a result, an
accounting policy established for one cryptocurrency may not be appropriate for
others.

The discussion of accounting issues in this publication is not based on any

specific cryptocurrency. Entities should evaluate each cryptocurrency holding
separately based on their circumstances, the characteristics of the
cryptocurrency and the characteristics of the market for it.

Is a Cryptocurrency an Asset?

Before considering whether a specific IFRS Standard might apply to a

cryptocurrency, the question that must first be addressed is whether the
cryptocurrency meets the definition of an asset. The definition of an asset in the
IASB’s Conceptual Framework is “a present economic resource controlled by the
entity as a result of past events.” “An economic resource is a right that has the
potential to produce economic benefits.” Entities will need to assess whether
each cryptocurrency held qualifies as an asset.

Determining Which IFRS Standard to Apply

Paragraph 7 of IAS® 8 Accounting Policies, Changes in Accounting

Estimates and Errors requires the use of a specific IFRS Standard if it is
applicable. Although, IFRS Standards do not explicitly refer to cryptocurrencies,
the scope of an IFRS Standard may include items with the characteristics of
cryptocurrencies and therefore be applicable.

An Introduction to Accounting for Cryptocurrencies

Assuming the definition of an asset is met, the following standards

provide guidance on the accounting for various asset classes and merit
consideration to determine whether they address items with the characteristics
of cryptocurrencies:
 13

1. Cash (IAS 7 Statement of Cash Flows; IFRS 9 Financial Instruments)

2. Non-cash financial assets (IAS 32 Financial Instruments: Presentation, IFRS 9

Financial Instruments)

3. Investment properties (IAS 40 Investment Property)

4. Intangible assets (IAS 38 Intangible Assets)

5. Inventory (IAS 2 Inventories).

Is a Cryptocurrency Cash (or a Cash Equivalent)?

IAS 7.6 defines cash by stating: “Cash comprises cash on hand and
demand deposits.” Additional detail is provided in paragraph AG3 of IAS 32
which states: “Currency (cash) is a financial asset because it represents the
medium of exchange…” Currency (including foreign currency) is generally
accounted for as cash. The term “cryptocurrency” suggests that it is a currency;
however, this does not mean it is necessarily cash for accounting purposes.

It may be that some (but not all) cryptocurrencies can be used as a

medium of exchange; indeed, that was the original purpose behind Bitcoin and
some other cryptocurrencies. However, at this time it appears that
cryptocurrencies represent a limited medium of exchange compared to most
traditional fiat currencies. In part this is because, unlike established currencies
such as the Canadian and U.S. dollar, they are not supported by a central bank or
recognized as legal tender in most jurisdictions. In addition, some very large
financial institutions in Canada and the U.S. have banned the purchase of
cryptocurrencies on their credit card platforms. One institution cited “high
volatility and risk as the leading factors behind their decision.”

Cryptocurrencies do not seem to meet the definition of a cash equivalent

in IAS 7.6 which is “short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value”, since they do not have a short-term life and often have
significant short-term value changes. Furthermore, in some cases there are
constraints on the liquidity of such currencies and their conversion to a fiat
currency. It is not likely at the current time that cryptocurrencies qualify to be
accounted for as cash or a cash equivalent.

Is a Cryptocurrency a Non-cash Financial Asset?

A key characteristic of a financial asset is that the holder of the financial

asset has the contractual right to receive cash or another financial asset from
another entity or to exchange financial assets or financial liabilities with another
entity under conditions that are potentially favourable to the holder. The holder
of a cryptocurrency generally does not have any such contractual right.
 14

Therefore, cryptocurrencies do not seem to meet the definition of a non-cash

financial asset in accordance with IAS 32 and IFRS 9.

However, certain contracts to buy or sell cryptocurrencies in the future

(e.g., forward contracts or options) or other contracts that settle in cash based on
movements in a particular cryptocurrency may meet the definition of a
derivative and be subject to financial-instruments accounting.

Is a Cryptocurrency an Investment Property?

IAS 40.5 defines an investment property as “property (land or a

building — or part of a building — or both) held (by the owner or by the lessee
under a finance lease) to earn rentals or for capital appreciation or both, rather
than for:

1. use in the production or supply of goods or services or for administrative

purposes; or 2. sale in the ordinary course of business.”

Some entities hold cryptocurrencies for capital appreciation, but

cryptocurrencies are not property (i.e., land or buildings) as specified in the
definition of investment property. Therefore, it does not seem that a
cryptocurrency is investment property within the scope of IAS 40.

Is a Cryptocurrency an Intangible Asset?

An intangible asset is defined in IAS 38.8 as “an identifiable non-monetary

asset without physical substance.” Cryptocurrencies are generally identifiable
and without physical substance. Cryptocurrencies generally are non-monetary as
they do not meet the definition of monetary assets in IAS 38.8 being “assets to be
received in fixed or determinable amounts of money”. Consequently, it appears
that many cryptocurrencies are likely to meet the definition of intangible assets
and are therefore within the scope of IAS 38.

A cryptocurrency within the scope of IAS 38 and eligible for recognition

should be measured initially at cost. The cryptocurrency may be subsequently
measured at either cost (i.e., the cost method) or at fair value (i.e., the
revaluation method). It is likely that cryptocurrencies would qualify as indefinite
lived intangibles, if there are no factors to indicate a definite useful life. Under
the cost method, any impairment charge recorded under IAS 36 Impairment of
Assets is recorded in the statement of profit or loss.

The revaluation method can only be used if there is an active market for
the cryptocurrency. Appendix A of IFRS 13 Fair Value Measurement defines an
active market as a “market in which transactions for the asset or liability take
place with sufficient frequency and volume to provide pricing information on an
 15

ongoing basis.” An entity wishing to use the revaluation method will need to
establish that an active market exists for the cryptocurrency. If there is an active
market for the cryptocurrency and if the revaluation method is elected as a
policy, the statement of financial position would reflect its period-end fair value.

Under the revaluation method, the accounting for the change in fair value
is more complex: increases in fair value are recorded in other comprehensive
income (OCI), while decreases are recorded in profit or loss. Under IAS 38, there
is no recycling of gains from OCI to profit or loss. However, to the extent that an
increase in fair value reverses a previous decrease in fair value that has been
recorded in profit or loss, that increase is reported in profit or loss. As a result,
the cumulative effect on profit or loss includes the net decrease in fair value of
the cryptocurrency over time. Similarly, a decrease in fair value that reverses a
previous increase is recorded in OCI, resulting in the cumulative effect on OCI
being the net increase in fair value of the cryptocurrency over time.

Is a Cryptocurrency Inventory?

IAS 38.3 notes that it does not apply to intangible assets held for sale in
the normal course of business and that such intangible assets should be
accounted for in accordance with IAS 2. Cryptocurrencies within the scope of
IAS 2 would be measured at the lower of cost and net realizable value under the
general inventory model required by IAS 2. As a result, decreases in net
realizable value would be recorded in the statement of profit or loss while
increases in net realizable value in excess of previously recorded decreases
would not be recorded.

However, the accounting is different for commodity broker-traders.

IAS 2.5 defines commodity broker-traders as “those who buy or sell commodities
for others or on their own account, for the purpose of selling in the near future
and generating a profit from fluctuations in price.” Broker-traders measure
inventories of commodities at fair value less costs to sell and changes in value
are recorded in profit or loss (IAS 2.3(b)). While this accounting result will seem
logical to many, it is available only to those entities that meet the definition of a
broker-trader.

Other Considerations

IAS 38 specifically excludes certain intangible assets from the scope of the
standard. Cryptocurrencies are not listed among the assets scoped out of IAS 38.
There is, however, a scope exemption in paragraph 7 of IAS 38 for expenditures
on the exploration for and development and extraction of oil, gas and mineral
deposits or similar non-regenerative resources, and insurance contracts because
these “activities or transactions are so specialized that they give rise to
 16

accounting issues that may need to be addressed in a different way.” The view
has been expressed that a cryptocurrency may be a “nonregenerative” resource
because it is limited to a certain number of units and is “mined.” However,
cryptocurrencies are clearly different from oil, gas and minerals and therefore
are not “similar non-regenerative resources.” The view has also been expressed
that IAS 38.7 can be applied by analogy to cryptocurrencies.

However, the IASB has explicitly limited this scope exception to particular
circumstances. Accordingly, it appears it is not appropriate for preparers to
extend the exception in IAS 38 to the accounting for cryptocurrencies. Paragraph
19 of IAS 1 Presentation of Financial Statements allows that “in extremely rare
circumstances” management may conclude that compliance with a requirement
in an IFRS Standard would be so misleading that it would conflict with the
objective of financial statements. Application of IAS 1.19 is not appropriate in
accounting for cryptocurrencies.

IAS 8.10 allows management to use its judgment to develop an accounting

policy in the absence of an IFRS Standard that specifically applies to a
transaction. However, as discussed above, it appears that one of the
IFRS Standards would apply to a cryptocurrency holding (which IFRS Standard
may depend on the specific facts and circumstances). As such, it appears it would
be inappropriate for management to apply IAS 8.10.

IV. The Future of Cryptocurrency

Some governments have chosen a cautious approach, deciding not to
regulate cryptocurrencies since crypto assets are not yet threats to current
financial systems due to its relatively small market capitalization. Some have
banned or blocked the usage of cryptocurrency within the country’s borders
entirely. Others have set out to create a very detailed and specific rules and
recommendations to regulate Blockchain technology.

Nevertheless, there were crypto enthusiasts who are continuously

exerting efforts in introducing the crypto in the country. When the Philippine
Government published Circular No. 944 in January 2017, it was big news. It
provided a legal framework for the Virtual Currencies and crypto exchanges.

In February 2018, it became known that the Philippines was set to create
the “Crypto Valley” in the Cagayan Special Economic Area at Santa Ana, Cagayan.
The information was published about several partnerships with Japanese-led
companies and funds, which were to help bring regulations, technical solutions
and practical implementations to players, driving development. This is inspired
by the presence of a Crypto Valley in another country which is a global hub for
virtual currencies.
 17

In the end of April 2018, Reuters published the report, showing the
activation of the efforts to attract crypto platforms to the zone. The aim of the
hub is to encourage the promotion of Blockchain technology within the country
and allow various stakeholders in the region with access to the right technical
education. These entities would be able to carry out Initial Coin Offerings,
operate crypto exchanges and deliver any other services concerning
cryptocurrencies.
Programs such as university tours, hackathons, workshops, forums, and
conferences will be done in the hub. The industry leaders need to encourage and
educate citizens on how to purchase cryptocurrency from those individuals who
walk the talk and who will share their experiences. Politicians and financial
leaders also need to come onboard with cryptocurrency or get business owners
to accept it in their business. Media can also help in the education of blockchain
technology.

The government should evaluate current processes in the country to

determine whether they are adequately responsive to the pace of technological
change. They must be able to come up with how to supervise and control this
type of transactions and empower the regulators with that knowledge. They
should also encourage the establishment of industry standard-setting bodies
which will coordinate with concerned government agencies, sectors, and
organizations. That body must be able to establish standards for how businesses
collect, store, and share the online data generated by individuals using
cryptocurrency. In here, the role of the accountants may rise. Governing bodies
in Accountancy must be able to reach out and learn how cryptocurrency will be
embraced in the country.

As of July 2018, the Bangko Sentral ng Pilipinas (BSP) have granted only
two licenses to Betur Inc., which operates Coins.ph, and Rebittance Inc. of SCI
Ventures, which operates Rebit.ph. Both Coins.ph and SCI Ventures had given
remarks about their support for multiple currencies other than bitcoin in the
past. In the present, Coins.ph supports BitCoin Cash, Ethereum, and BCH while
SCI Ventures announced their upcoming support for Bitcoin Cash, Ethereum, and
Ripple.

The establishment of the said hub and the continuous engagement of

companies to cryptocurrency calls for the partnership of the regulators and the
industry. The government should be open to innovation while still imposing a
clear line of what is acceptable and what is not.

Cryptocurrencies might be full of risks – from scams to potential bubble

bursts – but there seems to be no signs of it going away, especially with the rise
of financial technology. Governments now need to decide on how to handle it
best.
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References:

 https://philippine.bc.events/news/taxation-of-cryptocurrencies-in-the-
philippines-how-are-virtual-currencies-regulated-93106

 https://bitpinas.com/cryptocurrency/what-is-cryptocurrency

 https://www.investopedia.com/terms/c/cryptocurrency.asp

 https://ccoingossip.com/advantages-and-disadvantages-of-
cryptocurrency

 https://www.bworldonline.com/philippine-cryptocurrency-transactions-
steady

 https://www.accountingdepartment.com/blog/bid/384341/accounting-
in-the-world-of-cryptocurrency

 https://www2.deloitte.com/us/en/pages/audit/articles/impact-of-
blockchain-in-accounting.html

 https://www.grantthornton.com.ph/insights/articles-and-updates1/line-
of-sight/bitcoins-transforming-your-phones-to-wallets/

 https://www.vantageasia.com/cryptocurrency-law-philippines/

 https://www.manilatimes.net/philippines-stepping-into-the-future-of-a-
crypto-nation/431911/
 https://medium.com/noahcoin/the-philippines-and-cryptocurrencies-
future-to-come-2d8f4c3fc8ce
 https://medium.com/noahcoin/the-philippines-and-cryptocurrencies-
future-to-come-2d8f4c3fc8ce