South Korea Demands Crypto Companies To Reveal Holdings

Key Points:

• South Korea to require crypto companies to disclose holdings in financial statements from 2024 onwards.
• Companies must disclose quantity, characteristics, business models, accounting policies, profits, volume, and market value of crypto.
• New rules improve accounting transparency following passing of Virtual Asset User Protection Act.

South Korea’s financial regulator has released draft rules that will require companies that own or issue cryptocurrency to disclose more information in their financial statements starting in 2024.

The new rules mandate that companies disclose information about the quantity, characteristics, business models, and accounting policies related to the sale of virtual currencies, as well as profits, volume, and market value of their cryptocurrency. The aim of these measures is to improve accounting transparency in the wake of the passing of the Virtual Asset User Protection Act on June 30.

Companies and their auditors held different opinions on the timing and criteria for determining whether the sale of virtual assets to customers constituted profit. Under the new rules, if companies sell virtual assets, the sales will be recognized as profit after the company fulfills obligations to its holders.

Costs incurred in developing virtual assets and their platforms will not be recognized as intangible assets, the announcement said. However, the new rules may create some accounting uncertainties that domestic accounting experts have been discussing for the past year. The Financial Services Commission, the Financial Supervisory Service, and the Accounting Standards Board are all participating in this discussion. The announcement added that audit procedure guidelines are being prepared to help companies comply with the new rules.

South Korea is currently facing a critical issue regarding blockchain-based game developer Wemade. According to the local news outlet, Money Today, Wemade has a market capitalization of US$1.04 billion. Recently, the company caused a great deal of confusion among investors when it reversed its already-published financial statement to exclude 40% of its 2021 annual revenue.

This was due to the accounting firm deeming the sale of its WEMIX cryptocurrency not classifiable as revenue, which further compounded the confusion. This incident highlights the importance of clear accounting standards and regulations in the rapidly evolving world of blockchain technology. As the industry continues to grow, it is crucial that companies adhere to strict guidelines to ensure transparency and trust with investors and the public.

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