South Korea To Set Clear Accounting Standards For Virtual Assets
Key Points:
- South Korea’s government has introduced accounting guidelines for virtual assets to address confusion and establish clear standards.
- Guidelines define the timing of revenue recognition and treatment of stolen assets.
- Stakeholder feedback is sought before finalizing guidelines.
According to News1, in response to the lack of clear accounting standards for virtual assets, South Korea’s government has introduced accounting guidelines to provide clarity and resolve market uncertainty.
The Financial Services Commission and the Financial Supervisory Service have collaboratively prepared these guidelines, ensuring compliance with the International Financial Reporting Standards (IFRS) through a reasonable interpretation. The move aims to establish comprehensive supervisory guidelines for accounting standards related to various transactions and stages involving virtual assets.
One of the primary issues addressed by the guidelines is the timing of revenue recognition for companies issuing virtual assets. Previously, different criteria were applied by each issuing entity, leading to discrepancies and differing opinions between companies and auditors. The guidelines now specify that revenue from the sale of virtual assets will be recognized only after the company fulfills all obligations to virtual asset holders.
Until such obligations are fulfilled, the payments received will be accounted for as liabilities. The guidelines further emphasize the need for clear delineation of the issuing company’s obligations to avoid retroactive changes that may delay revenue recognition.
Additionally, the guidelines shed light on the treatment of stolen assets. If an asset is classified as a liability in the issuer’s financial statements and subsequently stolen through hacking, it must be unconditionally compensated. However, if it is considered a customer’s asset, the liability for damages exists, but there is no obligation to reimburse the stolen amount.
The guidelines also address the recognition of development costs associated with virtual assets and platforms. Unless clear grounds are provided to classify such costs as intangible assets according to the prescribed standards, they will be treated as expenses when incurred. The guidelines establish six stringent requirements for the recognition of development costs, which necessitate objective evidence for compliance. Meeting these requirements is expected to pose challenges for companies.
Furthermore, the guidelines consider the recognition of assets and liabilities based on economic control over virtual assets, taking into account international trends and the level of legal property rights protection for customers. Factors such as customers’ ability to claim legal property rights and operators’ rights to freely utilize entrusted virtual assets will determine whether they are recognized as assets or liabilities of the operator.
South Korea‘s government plans to gather feedback from stakeholders, including listed companies, virtual asset operators, and accounting firms, over a two-month period. The feedback will be taken into account for finalizing the revision of the supervision guidelines and standards. The revised guidelines and standards are expected to be announced and implemented during October and November, following deliberation and resolution by the Accounting System Deliberation Committee and the Securities and Futures Commission. The Accounting Supervision Guidelines will take immediate effect upon publication.
These comprehensive guidelines aim to provide reliable and useful information, facilitating comparisons between companies and ensuring greater transparency in the accounting practices related to virtual assets.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
Author
News
South Korea To Set Clear Accounting Standards For Virtual Assets
Key Points:
- South Korea’s government has introduced accounting guidelines for virtual assets to address confusion and establish clear standards.
- Guidelines define the timing of revenue recognition and treatment of stolen assets.
- Stakeholder feedback is sought before finalizing guidelines.
According to News1, in response to the lack of clear accounting standards for virtual assets, South Korea’s government has introduced accounting guidelines to provide clarity and resolve market uncertainty.
The Financial Services Commission and the Financial Supervisory Service have collaboratively prepared these guidelines, ensuring compliance with the International Financial Reporting Standards (IFRS) through a reasonable interpretation. The move aims to establish comprehensive supervisory guidelines for accounting standards related to various transactions and stages involving virtual assets.
One of the primary issues addressed by the guidelines is the timing of revenue recognition for companies issuing virtual assets. Previously, different criteria were applied by each issuing entity, leading to discrepancies and differing opinions between companies and auditors. The guidelines now specify that revenue from the sale of virtual assets will be recognized only after the company fulfills all obligations to virtual asset holders.
Until such obligations are fulfilled, the payments received will be accounted for as liabilities. The guidelines further emphasize the need for clear delineation of the issuing company’s obligations to avoid retroactive changes that may delay revenue recognition.
Additionally, the guidelines shed light on the treatment of stolen assets. If an asset is classified as a liability in the issuer’s financial statements and subsequently stolen through hacking, it must be unconditionally compensated. However, if it is considered a customer’s asset, the liability for damages exists, but there is no obligation to reimburse the stolen amount.
The guidelines also address the recognition of development costs associated with virtual assets and platforms. Unless clear grounds are provided to classify such costs as intangible assets according to the prescribed standards, they will be treated as expenses when incurred. The guidelines establish six stringent requirements for the recognition of development costs, which necessitate objective evidence for compliance. Meeting these requirements is expected to pose challenges for companies.
Furthermore, the guidelines consider the recognition of assets and liabilities based on economic control over virtual assets, taking into account international trends and the level of legal property rights protection for customers. Factors such as customers’ ability to claim legal property rights and operators’ rights to freely utilize entrusted virtual assets will determine whether they are recognized as assets or liabilities of the operator.
South Korea‘s government plans to gather feedback from stakeholders, including listed companies, virtual asset operators, and accounting firms, over a two-month period. The feedback will be taken into account for finalizing the revision of the supervision guidelines and standards. The revised guidelines and standards are expected to be announced and implemented during October and November, following deliberation and resolution by the Accounting System Deliberation Committee and the Securities and Futures Commission. The Accounting Supervision Guidelines will take immediate effect upon publication.
These comprehensive guidelines aim to provide reliable and useful information, facilitating comparisons between companies and ensuring greater transparency in the accounting practices related to virtual assets.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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