When an established company considers holding crypto, the compliance questions usually come first. Is the activity permissible? Is the exchange or custodian acceptable? Have the wallets been screened? Are AML and sanctions controls adequate?
Those questions can all have satisfactory answers while the transaction still produces an outcome the institution did not intend.
The reason is that compliance, treasury, finance and risk may all be looking at the same crypto asset but measuring different things. Treasury may see a liquid reserve asset. Finance may see an intangible asset. Risk may see volatility or covenant exposure. Compliance may see an approved counterparty and permissible transaction.
None of those conclusions is necessarily wrong. The problem arises when they are reached separately.
For institutions entering crypto, accounting therefore needs to be part of the pre-transaction control framework rather than a reporting exercise performed after execution. The compliance function does not need to determine the accounting treatment itself. It needs to make sure the accounting answer exists before the transaction is approved.
Four examples can show why.
Market liquidity and accounting liquidity are not the same
Treasury typically thinks about liquidity in economic terms: how quickly can an asset be sold and converted into cash? Financial reporting asks a different question: Where does that asset sit on the balance sheet?
Consider a non-financial company with:
* $100 million of cash;
* $100 million of other current assets;
* $100 million of current liabilities.
Its current ratio is 2.0x and its cash ratio is 1.0x.
Management decides that $30 million is excess cash and wants to diversify its reserves into Bitcoin. Bitcoin trades continuously in deep markets and can potentially be sold within minutes.
Compliance approves the exchange and custodian. Sanctions and wallet-screening controls are in place. The board approves the investment. At the moment of purchase, the company has not lost any economic value. It has simply exchanged $30 million of cash for $30 million of Bitcoin.
But under IFRS, the financial statements may look very different.
For cryptocurrency of the type considered by the IFRS Interpretations Committee, IAS 38 applies unless the holding is inventory within the scope of IAS 2. Cryptocurrency is not treated as cash merely because it can readily be sold.
If the Bitcoin is held as a long-term treasury reserve and does not qualify for current classification, the balance sheet could now contain:
* $70 million of cash;
* $100 million of other current assets;
* $30 million of non-current cryptocurrency.
Current assets fall from $200 million to $170 million.
The current ratio falls from 2.0x to 1.7x.
The cash ratio falls from 1.0x to 0.7x.
The economic value of the company’s assets has not changed at acquisition, because Bitcoin is classified as non-current. But the balance sheet now presents a weaker liquidity position. That distinction can affect internal treasury limits, financing covenants, credit analysis and board reporting.
A policy allowing a percentage of “liquid reserves” to be invested in digital assets therefore leaves an important question unanswered: liquid according to whom?
Treasury may mean an asset that can be sold quickly. Finance may mean cash and current assets under IFRS. A lender may use a contractual definition of eligible liquidity. Risk may apply a haircut.
The control failure occurs when Treasury classifies an asset as liquid before Finance has determined whether the financial statements will do the same.
Economic return doesn’t mean reported return
A second mismatch appears when management assesses crypto by investment performance while accounting determines when and where that performance appears in the financial statements.
Tesla provides a useful real-world example. In 2021, Tesla changed its investment policy to provide greater flexibility to diversify and maximise returns on cash that was not required for operating liquidity. The policy permitted investment in alternative reserve assets, including digital assets, and the company subsequently invested $1.5 billion in Bitcoin.
The economic reasoning was familiar: redeploy part of excess cash into an asset with potential appreciation while retaining liquidity.
The accounting outcome was much less intuitive. Under the US GAAP applicable at the time, Bitcoin was accounted for as an indefinite-lived intangible asset. Declines below carrying value generated impairment charges, but subsequent increases in market price could not simply be recognised back through earnings unless the asset was sold.
During 2021, Tesla recognised approximately $101 million of Bitcoin impairment losses. Yet at year-end its remaining Bitcoin had a carrying value of approximately $1.26 billion and a fair market value of approximately $1.99 billion.
Treasury could therefore see a holding whose market value remained well above its carrying amount, while the income statement had already recognised impairment.
In simplified terms:
Treasury: the investment has appreciated.
Accounting: the company has recorded impairment.
U.S. accounting has since changed. FASB’s ASU 2023-08 requires qualifying crypto assets to be measured at fair value, with changes recognised in net income.
While that removed much of the old asymmetry, it did not remove the underlying control problem.
Strategy, formerly MicroStrategy, illustrates the new version. Before adopting fair-value accounting, the company had accumulated billions of dollars of Bitcoin impairment losses. Under the new model, changes in Bitcoin’s market price flow much more directly through earnings.
The financial statements now reflect market value more closely, but reported earnings also become significantly more volatile.
Accounting reform therefore changed the distortion; it did not eliminate the need to model financial-reporting consequences before an investment is approved.
If a board paper argues that crypto will improve returns on excess liquidity, someone should already have determined how those returns — and losses — will appear in reported performance.
“Cash-like” is not the same as cash
Bitcoin looks obviously different from cash. Stablecoins are potentially more difficult precisely because they look familiar.
Imagine a treasury team proposing to move $50 million from conventional bank deposits into a US-dollar stablecoin. The rationale may be operationally attractive: 24/7 settlement, rapid transfers, access to digital-asset markets and a market price designed to remain close to one dollar.
Compliance can examine the issuer, reserves, sanctions exposure and custodian. Risk can consider depth and concentration risk.
Treasury may nevertheless describe the decision internally as moving dollars into another form of dollar liquidity.
Finance cannot begin with that assumption.
Under IAS 7, a cash equivalent must, among other requirements, be highly liquid, readily convertible into a known amount of cash and subject to an insignificant risk of changes in value. Whether a particular stablecoin or structure satisfies the relevant accounting definitions depends on its specific characteristics and contractual rights.
“Stablecoin” is not itself an accounting classification.
That can produce two different pictures inside the same company. Treasury’s dashboard may continue to show $100 million of liquidity. The financial statements may show $50 million of cash and cash equivalents plus $50 million of another type of asset.
Both functions may be applying internally coherent methodologies. Management can still make a poor decision if nobody reconciles them.
This is why due diligence on the stablecoin issuer is not enough. Compliance can approve the issuer without answering what the institution actually owns.
Approving the asset differs from approving the activity
Crypto approval frameworks can also become obsolete without the company acquiring a new asset.
Assume a company approves ETH as a treasury holding.
Finance determines the accounting treatment. Compliance approves the custodian and relevant counterparties. Risk establishes a position limit. Treasury acquires the ETH.
Several months later, the company decides that holding ETH without generating yield is inefficient and proposes staking it.
The token has not changed. But the activity and its risk profile have.
Staking can introduce additional validator or protocol exposure, liquidity restrictions, slashing risk, different custody arrangements, new flows of staking rewards and additional accounting and reconciliation questions.
A relatively modest treasury decision “we already own the ETH, so let’s earn a return on it” can therefore alter the risk and control profile of an already approved asset.
The same problem appears when a stablecoin is deployed into a lending protocol, crypto is pledged as collateral or a conventional asset is accessed through a tokenised structure.
For that reason, crypto approvals should not attach only to a list of approved tokens. They need to attach to the combination of asset, structure and activity.
Accounting belongs inside the approval process
None of these examples means compliance should make accounting judgments.
The relevant compliance control is not knowing the accounting answer. It is making sure the accounting answer exists before the transaction occurs.
For a material crypto transaction, the approval process should establish in advance:
– the legal and regulatory classification of the activity;
– the proposed accounting treatment;
– the balance-sheet and earnings consequences under realistic upside and downside scenarios;
– the effect on internal and contractual liquidity metrics;
– the valuation methodology and pricing sources;
– the financial-reporting controls and reconciliations that will be required; and
– whether later changes in use, such as staking, lending or collateralisation, trigger renewed approval.
The broader lesson is not unique to accounting. Established institutions already have sophisticated Compliance, Treasury, Finance and Risk functions. Crypto does not necessarily expose an absence of controls. It can expose the gaps between them.
An asset can be liquid to Treasury but not liquidity to Finance. It can produce an economic gain without producing the earnings effect management expects. It can look like cash while failing the relevant accounting definition. And an approved token can become a materially different risk once the institution changes what it does with it.
Before Compliance gives the green light to a material crypto transaction, there is therefore one additional question worth asking:
If we approve this today, what will our financial statements say tomorrow?
The answer may change the decision.
Zezag Kaimova is a finance executive with extensive experience at the intersection of finance, operations, and compliance in asset management and investment businesses. Her work has included overseeing KYC and due diligence processes, supporting regulatory compliance, managing banking and broker relationships, and navigating cross-border financial and operational requirements across multiple jurisdictions.
