The passing of the Virtual Assets Act by the National Assembly in South Korea has prompted the government to enhance accounting transparency for virtual asset transactions, enabling companies issuing or holding virtual assets to disclose clear and detailed information.
On July 11, the South Korea Financial Services Commission reviewed and approved the exposure draft for revising Corporate Accounting Standards No. 1001, incorporating mandatory disclosure requirements for virtual assets and establishing guidelines for the accounting treatment of virtual assets.
New rules in South Korea
Following the recent passage of South Korea’s Virtual Assets Act by the National Assembly, preparations are underway for implementing new rules.
The Financial Services Commission (FSC) has announced an amendment to the country’s Corporate Accounting Standards, prompting a Korean Accounting Standards Board review. These steps are being taken to establish comprehensive regulations for virtual assets within the country.
Under the newly introduced rules, cryptocurrency issuers operating in South Korea must provide extensive disclosures in their financial statements. These disclosures will encompass various aspects, including internal accounting practices, crypto token sales details, and token holdings specifics. Additionally, the rules will also apply to corporate entities that hold cryptocurrencies.
Another accounting challenge related to virtual assets is the inability to recognize the costs incurred while developing virtual assets and their platforms as intangible assets. Since these development activities don’t meet the criteria outlined in the intangible assets standard, companies must review their virtual assets annually to determine if there is any impairment in their intrinsic value.
Regulatory clarity necessary
On an international level, the United States, which doesn’t have set accounting guidelines for virtual assets, has taken steps toward enacting fair-value accounting principles.
The proposal, announced in February of this year, would mandate that public and private companies must now differentiate their crypto assets from intangible assets like patents when completing their financial statements. Firms will also need to report gains and losses on any crypto assets that are part of their net income.
Although the proposal has been put forward, the International Accounting Standards Board (IASB) has yet to enact accounting standards specifically for virtual assets, opting instead to publish guidelines.
As became evident in the United States District Court ruling that XRP is not a security on July 13, clear regulation is necessary for the mainstream adoption of cryptocurrencies, including how virtual assets are categorized and taxed.