Accounting For Cryptocurrency In UAE.0

August 4, 2022Dated:  | |

Digital instruments, especially cryptocurrencies like bitcoin, have gained enough attention in the last few years. In addition, potential investors across the world find these currencies worth investing in. The United Arab Emirates has seen many exchanges offering the option to invest and trade in such cryptocurrency or digital assets. 

Such digital assets, new in the finance world, are evolving every day, stopping people from getting one method of accounting established. These digital instruments’ complex factors and elements complicate the accounting process for investors and traders. Let us discuss the accounting framework which can be applied to these digital instruments to their maximum capacity.

What are referred to as cryptographic assets?

The digital form of assets that can maintain transparency and can be transferred is referred to as cryptographic assets. Cryptographic assets are one of the most secure forms of instruments that are maintained via blockchain technology. Among the many available cryptographic assets in the finance world, cryptocurrency is the most used and traded asset. For example, Bitcoin, Ether, Polkadot, etc. 

Plenty of platforms in the UAE had started to accept these cryptographic assets as a significant consideration, contrary to the situations when the traditional currency was given preference over digital instruments. Furthermore, the regulators have started to accept these assets as legal tenders in many parts of the world. 

What are the expected accounting standards for these cryptographic assets?

Some experts argue that cryptocurrencies or cryptographic assets must be considered as a form of cash because it happens to be a digital currency. However, one cannot consider cryptocurrency as cash pertaining to the uncertain value and unavailability of the exchange of goods and services. Even though one can witness an increasing number of entities and organizations that have started to accept these cryptographic assets as a medium of exchange, it has not been accepted as legal tender. In addition, IAS 32 and IAS 7 did not define the legality of cryptographic assets until now. 

IAS 7 refers to cash equivalents as highly liquid instruments and investments for the short term. The cash equivalents can be converted into a certain amount of cash. Also, they are not subjected to high risk. At the same time, cryptocurrencies are a form of assets that suffer from high risk or price volatility. 

Cryptocurrency doesn’t represent any form of equity interest, cash, or another form of contract. They are neither equity security nor debt security. Therefore, cryptocurrencies cannot use the accounting standards used for cash. 

There are many challenges in the path of simplifying the accounting standards for cryptocurrencies like bitcoin. The currency is one of the most evolving currencies, which goes through several updates. It comes with a combination of multiple characters, making it difficult to develop a certain standard for the accounting process. 

How  can FlyingColour help you clarify your doubts about cryptographic assets?

Cryptocurrency is one of the most complex forms of asset which requires the most clarity and guidance. The intrinsic nature of these assets demands expertise in the subject matter to help you with the accounting methods efficiently. 

FlyingColour holds experience in consulting, tax services, and financial statements for many organizations across the UAE. With a dedicated team who are experts in this field. The team helps you provide accounting guidance which adds value to the company. In addition, we excel in providing other consultancy services which help manage the assets of your organization/business. 

We can help you get the industry experts who will give you the best recommendation to get your accounting on track. You can get in touch with our team or visit our website for detailed information!

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