Cannot Overstate Revenue and Assets Through Token Issuance

Strengthening Regulations on Accounting and Disclosure of Virtual Assets

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where financial authorities decided to promote a plan to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. Financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@

The Financial Services Commission and the Financial Supervisory Service announced on the 20th that the 'Guidelines for Supervising Accounting Treatment of Virtual Assets' were approved at the regular meeting of the Securities and Futures Commission.

This is a follow-up measure to the 'Measures to Enhance Transparency in Virtual Asset Accounting and Disclosure' announced last July. Additionally, with the revision and promulgation of K-IFRS No. 1001 (Presentation of Financial Statements), which strengthens virtual asset disclosures, a Best Practice for virtual asset note disclosures was established and released on the same day.

According to the main contents, virtual asset issuing companies can recognize revenue from the transfer of virtual assets only after fulfilling all performance obligations stated in the white paper. Issuing companies must clearly identify their performance obligations at the time of token sales, and if performance obligations are changed after sales without special reasons such as significant changes to the white paper, the related accounting treatment is considered an error.

Reserved tokens held internally by the issuing company without transferring to others after issuance (creation) cannot be recognized as assets. Since transferring these reserved tokens to third parties in the future may affect the value of virtual assets already in circulation, the quantity of reserved tokens and future utilization plans must be disclosed in the notes.

Furthermore, companies holding virtual assets classify them as inventory, intangible assets, or financial instruments depending on the purpose of acquisition and whether the virtual asset qualifies as a financial instrument. However, companies applying the Korean Generally Accepted Accounting Principles (K-GAAP) must designate an account title (such as other assets) that reflects the characteristics of the virtual asset and present it in the financial statements.

In addition, virtual asset service providers (exchanges) must consider who has control over virtual assets entrusted by customers. If control is deemed to reside with the service provider, the provider must recognize the virtual assets and the liabilities to customers as assets and liabilities, respectively. Otherwise, the information must be disclosed in the notes.

Here, control refers to control over economic resources, and the judgment should comprehensively consider contracts between parties, relevant laws and regulations, as well as international trends, including the level of legal property rights protection the service provider offers to customers. For example, in the event of a hacking incident, if the legal property rights of customers over entrusted virtual assets are not guaranteed, or if the service provider has explicit or implicit rights to freely use the entrusted virtual assets, it must be considered whether to recognize them as the provider’s assets and liabilities.

Moreover, the scale of virtual asset issuance, performance obligations, key contents of the white paper, status of internal reserves and free distributions, contract details of customer-entrusted virtual assets, and custody risks must be disclosed in the notes without fail.

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