cryptocurrency regulation singapore

What exactly is cryptocurrency?

Cryptocurrency is an intangible digital token that is recorded using a public distributed ledger (primarily referred to as ‘blockchain’). Simply put, cryptocurrencies are assets which lack a physical form.

These digital tokens typically provide a variety of use which may include it being designated as a medium of exchange (similar to fiat currencies), rights to the use of other assets and/or services, or can represent ownership interests.

Owners of these digital tokens are given a unique key that creates a new entry in the public distributed/maintained ledger. Access to this ledger allows the transfer or re-assignment of the ownership of the said token. These tokens represents specific amounts of digital assets which an entity has the right to control, and whose control can be transferred to other parties.





Prima facie, cryptocurrencies could possibly be accounted for under the following accounting standards:


      • FRS 7 Statement of Cash Flows

      • FRS 109 Financial Instruments

      • FRS 40 Investment Property

      • FRS 16 Property, Plant and Equipment

      • FRS 2 Inventories

    • FRS 38 Intangible Assets

The table below provides a summary assessing how the aforementioned accounting standards are applicable to cryptocurrencies:


Accounting standard(s) FRS 7 Statement of Cash Flows
Assessment of applicability Can cryptocurrencies be accepted as cash?  While cryptocurrency is a form of digital money, it cannot be considered equivalent to any fiat currency because cryptographic assets cannot readily be converted or exchanged for any goods or services. Notwithstanding the fact that a number of entities are accepting digital currencies as payment, digital currencies are not yet widely accepted as a medium of exchange and do not represent legal tender.   Do cryptocurrencies meet the definition of cash equivalents as defined by FRS 7?  Cash equivalents are defined by FRS 7 as ‘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’. Given that cryptocurrencies are subject to significant price volatility, they cannot be categorised as cash equivalents.
Result of assessment Cryptographic assets do not meet the definition of cash and cash equivalents.
Accounting standard(s) FRS 109 Financial Instruments
Assessment of applicability Should cryptocurrencies be accounted for as a financial asset at fair value through profit or loss (“FVPL”)?  FRS 32 Financial Instruments: Presentation defines a financial asset as any asset that is: cash  an equity instrument of another entity  a 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 entity; or a contract that will or may be settled in the entity’s own equity instruments and is: a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments;  a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. (For such purposes, the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments); or puttable instruments classified as equity or certain liabilities arising on liquidation classified by FRS 32 as equity instruments  With reference to the definition of a financial asset provided by FRS 32, it does not seem that cryptocurrencies meet the definition of a financial instrument primarily because it does not represent cash, an equity interest in an entity, or a contract establishing a right or obligation to deliver or receive cash or another financial asset. Furthermore, cryptocurrency is not a debt security nor is it an equity security because it does not represent an ownership interest in an entity.   Accordingly, cryptocurrencies should not be accounted for as a financial asset. Notwithstanding, we note that in the current climate, a cryptographic asset could first be issued to a buyer through a Simple Agreement for Future Tokens (“SAFT”), in which case the SAFT is eligible for recognition under FRS 32 as a financial asset and then measured under FRS 109 as a financial asset at fair value through profit or loss (“FVPL”).
Result of assessment Cryptographic assets do not meet the definition of financial assets under FRS 32 and hence, cannot be accounted for as financial assets at fair value through profit or loss under FRS 109. However, if an entity has acquired a SAFT, then the SAFT (if it meets the definition of a financial asset under FRS 32) can be accounted for as financial assets through profit or loss (“FVPL”) under FRS 109.
Accounting standard(s) FRS 40 Investment Property
Assessment of applicability FRS 40 Investment Property defines investment property as “property (land or a building – or part of a building – or both) held … to earn rentals or for capital appreciation…”.   Although cryptocurrencies are held by some entities for capital appreciation, it would be inappropriate for an entity to classify them as investment property and measure them at fair value through profit or loss as cryptocurrencies are not physical assets that are land or building (or part of a building) or both.
Result of assessment Cryptographic assets do not meet the definition of investment property under FRS 40 and hence, cannot be accounted for under this standard at fair value through profit or loss (“FVPL”).
Accounting standard(s) FRS 2 Inventories
Assessment of applicability In certain situations (and depending on an entity’s business and operating model), it might be appropriate to account for cryptocurrencies in accordance with FRS 2 Inventories, which defines inventories as assets that are: held for sale in the ordinary course of business used in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or for the rendering of services.  This is especially relevant for entities that are defined as investment entities (under FRS 110 Consolidated Financial Statements) who trade cryptocurrencies.
Result of assessment Cryptographic assets can be accounted for as inventories under FRS 2 (notwithstanding the fact that they are intangible in nature) if they are held for sale in the entity’s ordinary course of business (i.e. trading).
Accounting standard(s) FRS 16 Property, Plant and Equipment
Assessment of applicability FRS 16 Property, Plant and Equipment defines the category in terms of tangibility.   As cryptographic assets do not have a physical form, it would be inappropriate for an entity to classify them as property, plant or equipment.
Result of assessment Not applicable. This standard cannot be used as cryptographic assets lack tangibility.
Accounting standard(s) FRS 38 Intangible Assets
Assessment of applicability FRS 38 Intangible Assets defines an intangible asset as an identifiable non-monetary asset without physical substant. FRS 38 further states that an asset is identifiable if it is separable or arises from contractual or other legal rights.   An asset is deemed separable if it is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability.   This is further reaffirmed by the definition of a non-monetary asset stated in FRS 21 The Effects of Changes in Foreign Exchange Rates, which states that an essential feature of a non-monetary asset is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency.   Accordingly, it appears that cryptographic assets meet the definition of an intangible asset under FRS 38 as it is capable of being separated from the holder and sold or transferred individually and, in accordance with FRS 21, does not give the holder a right to receive a fixed or determinable number of units of currency.   Notwithstanding, if the cryptographic assets are held for sale in the ordinary course of the entity’s business, then the entity should account for these assets under FRS 2 Inventories instead (refer to scope exclusion under FRS 38 paragraph 3(a) irrespective of its absence of tangibility).
Result of assessment Cryptographic assets can be accounted for under FRS 38 provided that these assets are not held for sale in the ordinary course of the entity’s business. If they are held for sale in the ordinary course of the entity’s business, then the entity should account for these assets under FRS 2 instead.




How should an entity account for these cryptographic assets after determining the applicable accounting standard?


Accounting standard FRS 38 Intangible Assets
Initial recognition Cryptographic assets as intangible assets are initially recognised at cost.   Cost comprises the purchase price of the cryptographic asset and transaction fees (including exchange fees incurred by “takers”).   Crypto exchanges typically use a tiered “maker” and “taker” scheme to encourage frequent trading activities in large transaction amounts.   A “maker” is a party that creates a market on the exchange by selling cryptocurrency while the “taker” is the party that takes it off the market by purchasing it. Each party pays fees for the transaction, but “makers” typically pay lesser than “takers”.  Some crypto exchanges also charge a transaction fee but most exchanges typically charge a combination fee. These transaction fees are added into the cost of the cryptographic asset when an entity first recognises these assets on its statement of financial position.
Subsequent measurement FRS 38 allows intangible assets to be subsequently measured at cost less accumulated amortisation and impairment losses or revaluation.   Cost model  Using the cost model, intangible assets are measured at cost on initial recognition and are subsequently measured at cost less accumulated amortisation and impairment losses.   Revaluation model  Using the revaluation model, intangible assets can be carried at a revalued amount if there is an active market for them; however, this may not be the case for all cryptocurrencies. The same measurement model should be used for all assets in a particular asset class. If there are assets for which there is not an active market in a class of assets measured using the revaluation model, then these assets should be measured using the cost model.  FRS 38 further states that a revaluation increase should be recognised in other comprehensive income and accumulated in equity. However, a revaluation increase should be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset that was previously recognised in profit or loss. A revaluation loss should be recognised in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance in the revaluation surplus in respect of that cryptographic asset. It should be noted that since cryptocurrencies are often traded on an exchange, it is unlikely. that an active market is absent. Accordingly, it is possible for entities to adopt a revaluation model when accounting for cryptocurrencies.   Where the revaluation model is applied, FRS 113 Fair Value Measurement should be used to determine the fair value of the cryptocurrency. FRS 113 defines what an active market is and hence, judgement should be used to determine whether an active market exists for particular cryptocurrencies.  As there is daily trading of cryptocurrencies it is not difficult for an entity to demonstrate that such a market exists. This may , however, not be true for less well-known cryptocurrencies and hence, judgment may be required in those situations. A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value when available.  In addition, the entity should also determine the principal or most advantageous market for the trading of cryptocurrencies. Notwithstanding whether the cryptographic asset is accounted for under the cost model or the revaluation model, an entity will also need to assess whether the cryptocurrency’s useful life is finite or indefinite.   An indefinite useful life is where there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. It would appear that cryptocurrencies should be considered as having an indefinite life for the purposes of FRS 38. An intangible asset with an indefinite useful life is not amortised but is required under FRS 38 to be tested annually for impairment.
Derecognition Cryptographic assets that have been accounted for as intangible assets under FRS 38 shall be derecognised: on disposal; or when no future economic benefits are expected from its use or disposal (i.e., recognition of impairment loss).  The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds (on the trade date, i.e., the date where the recipient/buyer obtains control of that asset in the case of disposal), and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised. Gains are not permitted to be classified as revenue.
Accounting standard FRS 2 Inventories
Initial recognition Cryptographic assets as inventories are initially recognised at cost.   Cost comprises the purchase price of the cryptographic asset and transaction fees (including exchange fees incurred by “takers”).   Crypto exchanges typically use a tiered “maker” and “taker” scheme to encourage frequent trading activities in large transaction amounts.   A “maker” is a party that creates a market on the exchange by selling cryptocurrency while the “taker” is the party that takes it off the market by purchasing it. Each party pays fees for the transaction, but “makers” typically pay lesser than “takers”.  Some crypto exchanges also charge a transaction fee but most exchanges typically charge a combination fee. These transaction fees are added into the cost of the cryptographic asset when an entity first recognises these assets on its statement of financial position.
Subsequent measurement FRS 2 requires that inventories be measured at the lower of cost and net realisable value or, in the case of entities acting as a “broker-trader” of cryptocurrencies (such as investment entities), the entity can elect to measure inventories at fair value less costs to sell.  Broker-traders as defined by FRS 2 are those who buy or sell commodities for others or on their own account with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin.  Lower of cost and net realisable value  Under FRS 2, inventories are required to be subsequently measured at the lower of cost and net realisable value.  Net realisable value as defined by FRS 2 is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale (i.e., transaction fees for the disposal of the cryptographic asset including fees incurred by “makers”). Net realisable value can be calculated as the selling price published on the crypto exchange less these transaction fees.   The entity then measures the value of closing inventory on the reporting date at the lower of cost and its determined net realisable value. Should the net realisable value be lower than cost, then that difference is recognised in profit or loss as an impairment charge typically parked under the financial statement line item titled “other expenses” in the profit or loss segment of the statement of profit or loss and other comprehensive income.  Fair value less costs to sell  Fair value less costs to sell is calculated as the selling price published on a crypto exchange less the estimated costs necessary to make the sale (i.e., transaction fees for the disposal of the cryptographic asset including fees incurred by “makers”).  The difference for unrealised positions is typically recognised in profit or loss under the financial statement line item titled “net change in unrealised gain/(loss) on digital assets” in the profit or loss segment of the statement of profit or loss and other comprehensive income.  In addition to the above, it should be noted that cost of inventories should be assigned by using either the “first-in, first out (“FIFO”) or weighted average cost formula. An entity is also required by FRS 2 to use the same cost formula for all inventories having a similar nature and use.
Derecognition Cryptographic assets that have been accounted for as inventories under FRS 2 shall be derecognised: on disposal; or when no future economic benefits are expected from its use or disposal (i.e., recognition of impairment loss).  When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories shall be recognised as an expense in the period the write-down or loss occurs.   The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recognised as a reduction in inventories, recognised as an expense in the period in which the reversal occurs.

What other disclosures on the financial statements should an entity make?

It should be further noted that as there is so much judgement and uncertainty involved in the recognition and measurement of cryptocurrencies, a certain amount of disclosure is required to inform users of the financial statements in their economic decision-making.

FRS 1 Presentation of Financial Statements requires an entity to disclose judgements that its management has made regarding its accounting for holdings of assets (in this case cryptocurrencies) if those form part of the judgements that had the most significant effect on the amounts recognised in the financial statements.

Additionally, FRS 10 Events after the Reporting Period requires an entity to disclose any material non-adjusting events (i.e., events that did not exist at the reporting date but occurred during the period following the end reporting period and the date the financial statements are authorised for issue). This would include whether changes in the fair value of cryptocurrency after the reporting period are of such significance that non-disclosure could influence the economic decisions that users of financial statements make on the basis of the issued financial statements.


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