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Cryptocurrencies, including the most popular and longest running Bitcoin, are neither legal tender nor a financial product as they are "not cash nor an equity instrument of another entity," according to the latest decision by an international interpretative body of accounting practices.
The decision on the much-disputed digital currencies, which will become an international standard in bookkeeping, is expected to pose further challenges to crypto business operators' years-long efforts to make them recognized as legitimate currencies.
This, however, will enable the government to establish a legal basis on taxation and businesses to map out rules on corporate accounting.
According to the Korea Accounting Institute (KAI) Monday, the International Financial Reporting Interpretations Committee (IFRIC) made the decision after a meeting in London in June.
The IFRIC is associated with the International Financial Reporting Standards (IFRS) Foundation under the International Accounting Standards Board (IASB).
The standards of IFRS, a not-for-profit international organization responsible for developing a single set of high-quality global accounting standards, are required in more than 140 jurisdictions, with many others permitting their use.
The committee concluded cryptocurrencies are "not cash nor an equity instrument of another entity," adding they do not "give rise to a contractual right for the holder and it is not a contract that will or may be settled in the holder's own equity instruments."
Instead, the committee recognized a cryptocurrency as an "intangible asset" because it is capable of being "separated from the holder and sold or transferred individually and it does not give the holder a right to receive a fixed or determinable number of units of currency."
This means businesses will have to treat cryptocurrencies as intangible assets in accounting.
Intangible assets, according to the committee, are defined as "identifiable non-monetary assets without physical substance."
An asset is identifiable if it is separable or arises from contractual or other legal rights.
An asset is 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."
