A guide to auditing digital assets under IFRS Accounting Standards versus US GAAP

Forward-thinking companies around the world are actively using digital assets to shape their balance sheets, using a range of solutions – from cryptocurrencies to stablecoins and from tokenised equity to non-fungible tokens (NFTs). In 2024, more than 56% of Fortune 500 companies had at least some exposure to digital assets, according to Coinbase.

From an accounting point of view, though, digital assets often create confusion and stretch the boundaries of legacy accountancy frameworks. Many auditors and financial leaders worry about the disparity between the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) protocols. Misclassifications can distort earnings, risk compliance errors, and impair decision-making.

Understanding how each standard handles digital assets and why the differences matter to your business is a good first step.

Understanding digital assets in an accounting context

Digital assets include widely recognised assets such as Bitcoin, alongside enterprise applications such as real estate-backed tokens or tokenised loyalty points. The solutions are technologically diverse as blockchain-based representations of value, but they're also hard to define from an accountancy point of view. Consider these broad rules:

• Most digital assets, such as Bitcoin, fall under intangible assets according to both IFRS and US GAAP.

• Broker-traders can classify digital assets as inventory if they hold them for resale.

• Some tokens qualify as financial instruments if they relate to contractual rights.

• Within US GAAP, ASU 2023-08 requires holders to measure certain crypto assets at fair value through net income.

Classification of digital assets – IFRS versus US GAAP

Let’s take a closer look at IFRS and US GAAP to clarify matters.

IFRS

IFRS does not have a dedicated standard for digital assets. Instead, you must interpret the existing standards based on how you use the asset in question within your business model. Companies often apply International Accounting Standards (IAS) rules like IAS 38, which relates to intangible assets. These assets are defined as identifiable, non-monetary assets without physical substance.

Cryptocurrencies are  accounted for under IAS 38, as they are not legal tender, not financial assets, and do not provide contractual rights to receive cash or other financial assets.

Cryptocurrencies like Ether and Bitcoin typically qualify, unless the asset functions as inventory. If a trading platform holds the asset for resale, then IAS 2 – related to inventories – might apply.

It’s also possible that the asset could fall under IFRS 9 for financial instruments. This is a rarer case, though, and will typically only apply to tokenised assets that have embedded contractual rights. Bear in mind that IFRS represents a principles-based approach, so it's important to classify carefully. It's not unusual for a specific jurisdiction or auditor to question your chosen approach.

IAS 38 allows entities to choose between the cost model and the revaluation model for intangible assets, provided there is an active market for the asset. Under the revaluation model, increases in fair value are recorded in other comprehensive income (OCI), except to the extent they reverse previous impairment losses recorded in profit or loss.

The primary audit challenge under IFRS is in impairment testing and the rationale that a management team may use in classifying assets under specific standards.

US GAAP

With the release of ASU 2023-08, holders can now apply fair value measurement to certain crypto assets. In order for the asset to fall under ASU 2023-08, it must be intangible in nature and fungible, or interchangeable. No entity or related party can issue it, and the asset cannot provide enforceable rights to goods, services, or other financial assets.

Assets that do meet these criteria are subject to the fair value through net income measurement, with any changes recognised in earnings. This differs from IFRS, where fair value increases under the revaluation model go through OCI, not profit or loss, unless reversing prior impairments.

Certain assets like tokenised real estate, private blockchain tokens, or NFTs will often fall outside the scope of ASU 2023-08. In this case, they will be subject to historical cost accounting approaches, which, unfortunately, add another layer of complexity.

Subsequent measurement and audit considerations

Under IFRS, if you classify a digital asset as an intangible asset and use the cost model, you must measure it at cost less impairment. This refers to IAS 36, which governs impairment of assets. Intangible assets with indefinite useful lives — which includes most cryptocurrencies — are not amortised but are tested for impairment annually or when indicators arise.

Impairment under IAS 36 is measured as the difference between the carrying amount and the recoverable amount, which is the higher of fair value less costs of disposal and value in use. For digital assets, fair value less costs of disposal is typically used since value in use is often not applicable.

Contrary to prior statements, IFRS (IAS 36) does allow for the reversal of impairment losses if the asset’s recoverable amount increases in a later period. However, the reversal is limited to the carrying amount that would have been determined (net of amortisation) had no impairment been recognised.

Additionally, IFRS permits use of the revaluation model under IAS 38 if there is an active market. In that case, increases in fair value are recognised in OCI (unless reversing a previous loss in P&L), while decreases are recognised in P&L or OCI depending on prior gains.

If the asset comes under IAS 2, the measurement will depend on whether the holder is a broker-trader. These entities can also use fair value less cost to sell. Many feel this is a fairer approach. However, this exemption will not apply to most corporate holders.

By contrast, US GAAP now requires a real-time reflection of market values for any qualifying crypto assets. The standard requires dynamic reporting to better align with how markets perceive a digital asset's position. Unlike IFRS, all changes in fair value under ASU 2023-08 are recognised directly in net income, potentially increasing earnings volatility.

Auditors have to pay close attention to validate any fair value determination under US GAAP, especially with observable inputs, evaluation methodology, and third-party pricing.

Practical scenarios and impacts

To illustrate the differences, take the example of a multinational firm that has $20 million worth of Bitcoin. Under IFRS, if it holds the Bitcoin as an intangible asset measured at cost and the market were to fluctuate between $12 million and $22 million during the year, the company must recognise the impairment to $12 million.

If the fair value later recovers, IFRS allows a reversal of the impairment loss (up to the asset’s original carrying amount had no impairment occurred). Alternatively, if the firm applies the revaluation model and there is an active market, the increase to $22 million could be reflected in OCI.

Under US GAAP and ASU 2023-08, the company can reflect a fair value increase to $22 million directly in its net income. This reflects market conditions more immediately but can introduce volatility to earnings.

For auditors, this will affect both the structure of audit opinions and any substantive testing procedures. Auditors must have a deep understanding of both frameworks and, for multinational companies, must now reconcile any treatment differences at group level.

Why HLB is in the unique position to lead

Digital assets are part of an evolving accounting and auditing landscape that is difficult to interpret correctly. HLB understands the challenges many companies face and is ready to help with our global reach and depth across many asset classes.

Our teams combine technical IFRS and US GAAP experience with specialist insights into digital asset ecosystems. We work with clients to classify assets under both frameworks, build internal control systems, and assign fair value methodology.

To learn more about how we can help to support your digital asset strategy, contact us today.