How can all users of financial statements judge the credibility of information with the possible rise of a different economic/monetary system?
Our topic will be about how the current popular trend of a decentralized monetary system such as cryptocurrency will affect the information for financial statement users. We will be exploring possible solutions regarding measurement, accuracy, valuation, and presentation of the information in the financial statements assuming the new currency does take effect in real life.
This topic is of great importance due to the present rise in popularity of a more decentralized currency which inevitably will affect all users of financial statements (Armano, 2021). Although rare, it is not the first time that currency changes have occurred throughout history. Before the US dollar became today’s dominating currency, the Spanish peso was the main currency from the 16th to 19th century and many more before that as well. With this emerging trend, we believe that we are now at a turning point in history once again and therefore should start examining how such a phenomenon can be accounted for in the financial statements. Since this is a very new topic, a lot of questions still need to be answered and horizons to be explored. In our report, we will to the best of our ability and knowledge provide possible solutions and ideas for all interested parties in the business world. Solutions that can build a path and aid the future of financial reporting regarding such an economic change in society.
Outline of the analysis
As there is no consensus for how cryptocurrencies should be accounted for (cash, cash equivalents, intangible assets, investments, etc.), this lack of standard may increase information asymmetries for users of financial statements due to the unique nature of cryptocurrencies themselves.
Cryptocurrencies cover a comprehensive variety of terms and conditions. To decide which IFRS applies, the holder needs to carefully assess their individual terms and conditions. Depending on the applicable standard, the holder may therefore need to evaluate its business strategy in order to determine the proper accounting.
When a crypto-asset is held through a custodian or a crypto-exchange, determining ownership might be more difficult, and this can affect how the appropriate accounting is determined.
• Evaluate the actual currency system (pros and cons)
• Find primary and secondary sources which will support the argument.
• Provide facts to understand the current cryptocurrency situation
• Provide evidence to support that crypto transactions are easily traceable
• Analyze existing case of auditor auditing an entity with crypto transactions
• Explain what is a blockchain (PricewaterhouseCoopers, n.d.) and how can it reassure users when facing cryptocurrency
Armano, D. (2021, December 16). The end of cash, the rise of crypto and the future of payments. Forbes. Retrieved February 10, 2022, from https://www.forbes.com/sites/davidarmano/2021/12/15/the-end-of-cash-the-rise-of-crypto-and-the-future-of-payments/?sh=62e0541f5828
PricewaterhouseCoopers. (n.d.). Making sense of bitcoin, cryptocurrency and Blockchain. PwC. Retrieved February 14, 2022, from https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html
Ernst & Young. (2021, October). Applying IFRS Accounting by holders of crypto assets.