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Research Paper | Information Technology | India | Volume 11 Issue 6, June 2022 | Popularity: 4.2 / 10

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Accounting for Cryptocurrencies Under GAAP: Challenges in Valuation and Disclosure

Piyush Kumar Patel

Abstract: The rise of cryptocurrencies has presented unique challenges for accounting under Generally Accepted Accounting Principles (GAAP), particularly in valuation and disclosure. Cryptocurrencies, as digital assets, lack a precise classification within existing GAAP frameworks and are often categorized as indefinite-lived intangible assets. This classification brings challenges, as cryptocurrencies must be tested for impairment, with any losses recognized in the income statement. Yet, gains are only recorded once realized, leading to potential mismatches in financial reporting. The highly volatile nature of cryptocurrency prices further complicates valuation, making it difficult for businesses to provide accurate and consistent financial disclosures. Additionally, cryptocurrencies' decentralized and borderless nature poses risks related to compliance, taxation, and fraud prevention, further amplifying the need for transparent and reliable disclosures. Companies must also navigate evolving regulatory landscapes and significantly varying jurisdictions, complicating global operations. Furthermore, there needs to be more industry consensus on best practices for presenting cryptocurrency holdings and transactions, leading to inconsistent reporting across entities. These challenges highlight the need for updated GAAP standards to address the specific attributes of cryptocurrencies, balancing the need for investor transparency with the operational realities of businesses engaged in this space. As the adoption of cryptocurrencies increases, the accounting profession must provide more explicit guidance to reduce ambiguity and ensure that financial statements remain meaningful and trustworthy for stakeholders.

Keywords: Cryptocurrency, GAAP, financial reporting, valuation, disclosure, fair value, intangible assets

Edition: Volume 11 Issue 6, June 2022

Pages: 2054 - 2061

DOI: https://www.doi.org/10.21275/SR22063120052

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