The IASB's intangible asset framework was designed long before a VASP existed. Seven years after the IFRS Interpretations Committee issued its holding position on cryptocurrencies, the gap between accounting standards and commercial reality has never been wider, and the divergence with US GAAP is now a material issue for boards, investors, and regulators.

When a licensed exchange holds significant proprietary positions in Bitcoin and/or other digital assets, IFRS generally requires those holdings to be accounted for as indefinite-life intangible assets, in the same category as trademarks, software licences, and domain names. The common treatment under this standard is that the asset is carried at cost, written down on impairment, and usually never marked up. If the price doubles, the balance sheet does not move. If it falls, the loss is recognised immediately and can be reversed only in specific circumstances.

This is not a technicality. It is a structural misrepresentation of economic reality, commonly applied across many IFRS-reporting digital asset businesses holding crypto assets.

The Architecture of the Problem

Not all digital assets necessarily fall within IAS 38. The accounting outcome under IFRS depends heavily on the nature of the asset and the business model under which it is held. Certain broker-trader activities may fall within IAS 2, permitting fair value less costs to sell accounting through profit or loss. In addition, some tokenised arrangements such as security tokens, asset-backed tokens, tokenised debt instruments, and revenue-sharing structures may meet the definition of a financial instrument under IFRS 9 where they create contractual rights to cash flows or other financial assets. Certain investment fund structures may also achieve fair value-based reporting outcomes through broader investment entity or fund accounting frameworks.

The current IFRS treatment derives not from a purpose-built standard but from an Agenda Decision issued by the IFRS Interpretations Committee in June 2019. The Committee concluded that cryptocurrency holdings meet the definition of an intangible asset under IAS 38, on the grounds that they are identifiable, non-monetary, and lack physical substance. The Committee also noted that IAS 2 may apply where cryptocurrencies are held for sale in the ordinary course of business, including by brokers-traders, but absent these conditions, IAS 38 was the most defensible available framework. The Committee was not wrong on that analysis. It was simply applying principles designed for a world in which intangible assets did not trade continuously on liquid global markets.

Under IAS 38, an entity may elect the revaluation model for intangible assets, but only where an active market exists and only with gains recorded through other comprehensive income, not profit or loss. This means that even a VASP that correctly identifies and applies the revaluation model cannot reflect mark-to-market gains in its income statement. Upside is buried in equity; downside flows through the P&L. For most digital asset businesses, this asymmetry produces financial statements that are not comparable, not intuitive, and not particularly useful.

As the digital asset market evolves beyond cryptocurrencies such as Bitcoin and Ether, the boundary between intangible assets and financial instruments is becoming increasingly significant.

The US GAAP Divergence

In December 2023, the FASB resolved this problem for US GAAP reporters with ASU 2023-08. Effective for fiscal years beginning after 15 December 2024, the standard requires fair value measurement for in-scope crypto assets, with all changes recognised in net income each period. The scope criteria are specific: assets must be fungible, intangible, cryptographically secured, and reside on a distributed ledger without conferring enforceable rights on underlying goods or services. Bitcoin and Ether are clearly in scope. Wrapped tokens, stablecoins, and NFTs require further analysis.

The result is that a US GAAP reporter and an IFRS reporter holding identical Bitcoin positions will now produce materially different financial statements. The US entity marks to market through the income statement. The IFRS entity carries at cost or, at best, marks upward gains to equity only. For boards, investors, and acquirers conducting due diligence across jurisdictions, this divergence is not merely technical. It affects earnings, capital ratios, and investment analysis.

Where the IASB Stands

The IASB has not been inactive. Its broader review of IAS 38, covering the treatment of intangible assets generally, is ongoing, and the divergence created by ASU 2023-08 has increased stakeholder pressure to address digital assets specifically. The IASB Chair acknowledged the problem as early as December 2022, noting that the Committee's 2019 conclusion was analytically defensible but that disagreeing with the answer was "different from there being a gap." The political reality is that the IASB cannot ignore a material and growing divergence with US GAAP indefinitely, particularly as institutional digital asset adoption accelerates and cross-border capital flows increase.

However, standard-setting moves slowly. No dedicated IFRS digital asset project is yet active. Near-term change to IAS 38 is not anticipated. IFRS reporters, including the overwhelming majority of VASPs, exchanges, and digital asset funds operating in the UAE, UK, Europe, and Asia Pacific, are operating under the 2019 Agenda Decision for the foreseeable future.

What This Means in Practice

For CFOs and finance leads at digital asset businesses, the immediate implication is one of presentation and disclosure quality. The revaluation model under IAS 38 is available where an active market exists, and for Bitcoin, Ether and some other coins, that condition is clearly satisfied. Businesses that continue to apply the cost model by default, without a documented policy decision and disclosure of the accounting policy chosen, are not just understating their balance sheets. They are creating a disclosure gap that regulators, auditors, and sophisticated investors will increasingly identify.

For boards and investors, the US GAAP divergence has direct relevance in transaction and capital contexts. M&A due diligence on an IFRS-reporting target with material digital asset holdings requires specific attention to the accounting model applied, the carrying value versus fair value of those holdings, and any accumulated OCI balances that would not appear in headline earnings. A target that has held appreciating assets for two years under the cost model may present a balance sheet that is materially understated relative to economic value. The inverse, a business that recognised early-cycle impairments that were never reversed, is equally significant.

Meridion's Position

The 2019 Agenda Decision was a workable interim solution. It is no longer adequate. The gap between IFRS and economic reality, and between IFRS and US GAAP, is now wide enough to materially affect how digital asset businesses are financed, valued, and regulated. In the absence of an IASB-led resolution, IFRS reporters must apply the existing framework with maximum rigour, maximum disclosure, and a clearly documented accounting policy.

For law firms instructing professional advisors on digital asset transactions, the accounting framework is a due diligence matter, not a footnote. Regulatory bodies in the UAE, including VARA, the DFSA, and the FSRA, are increasingly alert to the quality of financial reporting by licensed entities. The alignment between an entity's accounting policies and its regulatory submissions is a matter that skilled person appointees and enforcement advisors will examine directly.

The standard will eventually catch up with the industry. Until it does, the quality of judgement applied within the existing framework is what distinguishes credible financial reporting from mere compliance.