Accounting for crypto assets in Japan

Accounting framework

At the time of writing this article (December 2020), the current accounting framework for crypto assets in Japan is set forth in Practical Response Report №38, “Tentative Treatment of Accounting for Virtual Currency under the Funds Settlement Law,” issued by the Accounting Standards Board of Japan on March 14, 2018.


While Practical Response Report №38 stipulates the treatment of crypto asset exchangers (exchanges and sales venues) and users (investors), it also points out that the accounting treatment of self-issued crypto assets (e.g., “whether an entity should recognize a liability or a profit for crypto assets issued for a consideration” and “whether crypto assets assigned to oneself should be subject to accounting treatment”) has not yet been fully understood.

Therefore, the scope of this Practical Response Report excludes self-issued virtual currencies (including those that were not virtual currencies at the time of issuance but subsequently came to fall under the category of cryptographic assets). In addition, since there have been cases where virtual currency is issued by an entity’s own affiliates, virtual currency issued by the entity’s own affiliates (including virtual currency that does not fall under the category of virtual currency at the time of issuance but has subsequently come to fall under the category of cryptographic assets) shall also be excluded from the scope of this Practical Response Report. (*Extracted from the Accounting Standards Board of Japan Statement [ASBJ] of Practical Solution №38, paragraph 26, issued by ASBJ on March 14, 2008)

In other words, the accounting treatment for ICO and airdrop is not clear yet.

*Although the International Financial Reporting Standards (IFRS) does not have a similar standard, the June 2019 Agenda Decision of the IFRS Interpretations Committee (IFRS-IC) states that “Inventories” shall be applied under IAS 2 for the holding of cryptographic assets, and if not, “Intangible assets” shall be applied under IAS 38.

Case of ICO (Initial Coin Offering) accounting

As mentioned above, there are no clear standards for the accounting treatment of self-issued crypto assets and ICOs. Therefore, when we looked for examples of domestic listed companies that could be used as a basis for standards, we found only one company that we can refer to and confirm at this time: Metaps Inc.

In 2017, Metaps Plus Inc., a subsidiary in South Korea, issued a crypto asset called “PlusCoin (PLC)” and raised funds through an ICO in exchange for Ether (ETH), which is already exchangeable for legal tender. The total number of PLCs issued was 11.1 million, with the basic rate of 1 ETH = 200 PLCs, and the company is said to have raised approximately 1 billion yen in Japanese yen by conducting an ICO for sales purposes out of the total number of PLCs issued. Subsequently, after revising the plan on the grounds that the business plan described in the white paper at the time of the PLC issuance no longer matched the business environment, the plan was exchanged for a new crypto asset called “NPLC” with modified holding privileges to the holders at a ratio of 1:100.

* The details can be confirmed in the past timely disclosures and securities reports.

Reference: PLC white paper

With respect to Ether (ETH) received as consideration at the time of the ICO based on the above history, the portion determined to be inventory was recorded at fair value less costs to sell and the portion determined to be intangible assets was recorded at acquisition cost. The counterpart account was recorded as deferred revenue, as it should be recognized as revenue as the obligations described in the white paper are fulfilled.

However, because the degree of fulfillment of the obligation for the PLC’s holder benefits was not clear, no reversal was made, and the reversal was made after the PLC was exchanged for an “NPLC” with new rights that clearly stated the expiration date, etc. of the holder benefits. In addition, the cryptographic assets (PLCs and NPLCs) issued by the company were recorded as intangible assets at acquisition cost (valued at zero yen). Although Metaps continued to invest in crypto asset-related businesses such as ICO consulting, it has now withdrawn from the crypto asset business with the exception of the “miime business,” which focuses on trading in the digital item marketplace.

In conclusion

In recent years, financial authorities in many countries have tightened regulations on ICOs, making it more difficult to conduct ICOs, and this has delayed the development of an accounting framework. The crypto asset market had once been called a tulip bubble and had a sense of shrinking, but now that the market is booming again, the development of accounting treatment for ICOs is urgently needed.

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*In the above text, “virtual currency” is unified with the expression “crypto assets” because “virtual currency” has been changed to the expression “crypto assets” in accordance with the revision of the Funds Settlement Law in May 2020.