"Accounting for Virtual Asset Issuance and Holding by Listed Companies Clarified... Mandatory Disclosure in Notes Also Enforced"

Financial Authorities Establish Virtual Asset Accounting Guidelines and Enhance Disclosure Transparency
"Ensuring Transparent Corporate Disclosures to Provide Investors with Reliable Information"

Financial authorities are preparing supervisory guidelines for accounting treatment of companies that issue or hold virtual assets. The aim is to provide accurate information to investors by consistently applying accounting methods that were previously inconsistent and unclear across companies. Additionally, disclosure of notes on virtual asset holding transaction information in financial statements will also be mandatory.

The guidelines apply to all virtual assets that can be electronically transferred and stored using distributed ledger technology, including token securities digitized under the Capital Markets Act.

The supervisory guidelines on accounting treatment for virtual assets can be viewed separately for issuers, holders, and operators of virtual assets. An important aspect of accounting treatment for virtual asset issuers is whether the monetary consideration received from selling tokens issued to customers can be immediately recognized as revenue. Regarding this, financial authorities have stipulated that for tokens intended for sale, revenue should be recognized only after all obligations to the holders who purchased the virtual assets are fulfilled. When issuing tokens, the issuer incurs obligations such as transferring virtual assets → platform implementation → transferring goods or services within the platform; if monetary consideration is received before these obligations are completed, it must be treated as a liability rather than revenue.

Furthermore, costs incurred during the development of virtual assets and platforms by the issuer should be treated as expenses, not assets. For example, tokens issued by domestic listed companies aim to create economic benefits by providing goods or services in the ‘future.’ Since the potential to generate economic benefits cannot be proven at the time the token is developed, it must be treated as a liability according to the financial authorities’ guidelines. For self-retained virtual assets, except in cases where costs such as patent application fees are incurred, they should be accounted for as liabilities.

As of the end of last year, it is estimated that about 10 companies are issuing virtual assets. Major companies include Kakao (BORA, KLAY), Wemade (Wemix), Netmarble (MBX, FANCY), Neowiz Holdings (NEOPIN), and Danal (Paycoin), which have been issuing virtual assets through overseas subsidiaries since 2018. The number of listed companies holding virtual assets for investment purposes rather than issuance reaches around 30 to 40.

A Financial Services Commission official said, “Until now, accounting treatment for various events and transactions arising from development to issuance by domestic companies issuing virtual assets has been unclear, causing disagreements between companies and auditors (accounting firms). However, with the establishment of specific supervisory guidelines, market uncertainty will be resolved going forward.” He added, “The guidelines are largely consistent with the current accounting methods used by major virtual asset issuers, and the accounting guidelines apply to issuers, holders, and operators alike.”

For virtual asset holders, guidelines have been established to classify virtual assets as financial assets or liabilities, rather than intangible assets or inventory, only if they correspond to token securities under the Capital Markets Act.

Virtual asset operators (such as Upbit, Bithumb, Coinone, Korbit, Gopax) holding virtual assets entrusted by customers must perform accounting treatment considering economic control over those assets. Simply put, if protective measures to safeguard customers’ assets are insufficient or if there is an implicit system allowing the operator to freely use the assets, these should be recognized as liabilities. A Financial Services Commission official explained, “Even if virtual asset operators claim that ownership of entrusted assets belongs to customers, if they cannot prove which customer’s assets were stolen in the event of hacking, it should be considered that the operator recognizes it as a liability.” As of the end of last year, the total virtual assets entrusted to five virtual asset operators?Upbit, Bithumb, Coinone, Korbit, and Gopax?amounted to KRW 18.3067 trillion. Among the major held assets, Bitcoin accounted for KRW 3.6484 trillion, nearly 20%, followed by Ripple (KRW 3.2244 trillion, 17%) and Ethereum (KRW 2.3902 trillion, 13%).

Note Disclosure Also Mandatory... Expected to Be Reflected in Semiannual Financial Statements Next Year

All virtual asset issuers, holders, and operators must mandatorily provide note disclosures. Issuers must detail general information such as the quantity and characteristics of virtual assets, business models, revenue recognition for virtual asset sales proceeds, and the company’s judgments related to these. Detailed disclosure of the usage and holding information of reserved quantities is also required. Virtual asset holders must include both the book value and market value information of virtual assets in the notes.

Operators must disclose detailed information on the market value and quantity of all virtual assets held in custody, regardless of whether they recognize customer entrusted assets as liabilities. Additionally, information on the level of protection measures to prevent hacking risks must be provided to investors. A Financial Services Commission official stated, “Note disclosures will provide useful, reliable information that enables comparison between companies and will significantly reduce disagreements between companies and external auditors regarding the interpretation of accounting standards.”

The Financial Services Commission plans to hold briefing sessions for stakeholders on the announced accounting guidelines, gather opinions, and then proceed with deliberation and approval by the Accounting System Deliberation Committee and the Securities and Futures Commission in October to November before officially publishing the guidelines. The accounting guidelines will be implemented upon publication, and the mandatory note disclosure is expected to apply from the business year starting as early as January next year. Finally, a Financial Services Commission official cautioned, “The establishment of accounting standards for virtual assets does not reduce the inherent volatility or uncertainty of virtual assets themselves. Investment in virtual assets should be carefully considered under one’s own responsibility.”

This content was produced with the assistance of AI translation services.