Technical
3 May 2018 12:04pm

Practice Q&A: Bitcoin and social media

ICAEW experts tackle questions on accounting for bitcoin transactions, avoiding social media disaster, and digital PCRT

https://economia.icaew.com:443/-/media/economia/images/thumbnail-images/630qna-tech-social-media-may-min.ashx
Caption: illustration: Andrea Manzati

Q: What standards address the accounting for Bitcoin transactions?

A: Cryptocurrencies such as bitcoin have a current market capitalisation of hundreds of billions of US dollars, yet there are no specific accounting requirements for them in IFRS or UK GAAP. The challenge of accounting for them illustrates how accounting standards can’t necessarily keep up with commercial developments and the need to rely on general principles that are included within the standards to tackle emerging issues.

While it might seem an obvious solution to account for bitcoin as currency, it’s generally agreed that bitcoin cannot – yet – be classified as cash or even a “cash equivalent”: it does not exist in physical form, is not legal tender in most countries and is subject to volatile changes in value. Nor could bitcoin be another type of financial asset because it does not meet the definition: the holder has no contractual right to receive cash or another financial asset.

Bitcoin might in rare cases be classified as inventory, if held for sale in the ordinary course of business and there is a sufficient frequency of transactions. It is likely the most appropriate classification is as an intangible asset. However, as intangibles are generally used in a business to generate revenue (like patents or brand names), bitcoin does not feel like a typical intangible. The reason classification matters is because that determines measurement.

Most commentators agree that appropriate measurement for bitcoin would be at fair value through profit or loss. However, inventories are generally measured at cost or net selling price if lower and, where intangibles are measured at fair value (if there is an active market), movements must be taken to other comprehensive income. At a future meeting the IASB will discuss whether to add to its agenda a research project that would address these issues. In the meantime, clear disclosures will be vital.
Philippa Kelly, head of financial services, ICAEW

Q: When is the digital version of PCRT released?

A: Our professional conduct code on tax Professional Conduct in Relation to Taxation (PCRT) has been republished in a new digital form. As part of this move to a digital platform, the opportunity has been taken to restructure the format of the PCRT so that the PCRT text now focuses on Chapter 2, the Fundamental Principles and the Standards for Tax Planning. The remaining chapters of the PCRT, which contain guidance on the application of the Fundamental Principles and Standards, have been renamed Helpsheets and these are now hyperlinked from the Fundamental Principles and Standards. Existing cross references within the paper PCRT have also been hyperlinked directly to the relevant material, making it easier to find this material quickly.

The rationale is to help address members’ concerns that the paper-based PCRT was too long and that it was not always clear what was “mandatory” and what was guidance. The opportunity has therefore been taken in this digital PCRT to address these concerns by refocusing the PCRT on the core obligations that members must follow if they work in tax. That is, the Fundamental Principles and Standards. This section is therefore essential reading for all members working in tax. The Helpsheets remain part of the PCRT and, as guidance, support the application of the Fundamental Principles and Standards: members should refer to them as and when needed.

Although the digital PCRT has been republished in this restructured form, the substance and effect of the PCRT has not changed from the paper-based PCRT that became effective on 1 March 2017. The existing paper-based PCRT remains equally effective but we hope that members will find the new digital format more helpful. The new digital format should also make it easier to update, for example the individual Helpsheets can be updated for developments without the need to republish the whole PCRT.
Frank Haskew, head of tax, ICAEW Tax Faculty
icaew.com/pcrt

Q: How do I avoid falling foul of social media?

A: The key is to plan ahead and set some clear rules. Social media is a dialogue. Be interesting and be interested – ask questions and engage with people. This is all permanent – so you’re stuck with it. Are you saying this in the heat of the moment? If so, walk away, have a cup of tea, and reread. And social media is full of people not following the above rules. So be OK with the fact that things will go wrong at some point – make a plan for when things (inevitably) do so and you’ll find you can stay in control.

Assess who you’re dealing with, look at their profile and see if they’re just an agitator looking for exposure. If so it’s fine to block them. If not then be polite and engaging, this will solve most problems. If not then take it offline and remember – you’re answering their direct questions but for the other 99.9% of people who will see this live or in 10 years’ time you’re showing them how you deal with a tight situation.

The golden rule is that you shouldn’t say anything you wouldn’t say aloud in the pub where you will have both friends, strangers and potential enemies within earshot. This is where Ben Bradley MP, for example, went wrong – if you were to say what he said out loud in the pub you’d have more immediate things to worry about than a Twitter storm.
Tim Hirst, social media executive, ICAEW

Five in brief

1) GDPR
New data protection regulations come into force on 24 May, 2018. These require organisations to ensure the data they hold is audited, well documented and that data collections procedures are compliant. There are swingeing penalties for non-compliance.
icaew.com/gdpr

2) Charity auditor reporting
The Charity Commission has recently published a reminder of the new reporting requirement, introduced last year, for auditors to report material misstatements to the regulator. Many auditors have yet to report.
gov.uk

3) Auditing FRS 105 accounts
Some auditors are being asked to express an opinion on FRS 105 accounts. A new ICAEW helpsheet on micro companies provides guidance.
icaew.com

4) Anti-money laundering for accountants
The CCAB has published major new AML guidance for all entities providing services relating to audit, accountancy, tax, advisory and insolvency. Backed by ICAEW, HM Treasury and HMRC.
ccab.org.uk

5) FRC guidance post Carillion
Following Carillion’s collapse, the FRC released guidance reminding companies in the construction and business support services sectors of their reporting obligations and providing guidance. Does it apply to you?
frc.org.uk

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