The rise of crypto-assets has revolutionized how businesses transact, invest, and store value. From blockchain-based startups to large corporates exploring digital payments and tokenized securities, cryptocurrency has moved beyond hype and into the balance sheets. But as innovation surges ahead, regulatory and accounting frameworks are still catching up — and many businesses are left with a critical question:

Digital finance brings freedom — but freedom without frameworks is a risk.

Not every token is a financial instrument, but every transaction must be backed by intent, clarity, and an audit trail. In a future built on blockchain, your books will still speak first to your investors.

How should crypto-assets be treated under Indian Accounting Standards?
More specifically, does IND AS 109 – Financial Instruments – apply to crypto-assets?

Understanding IND AS 109 – The Foundation of Financial Instrument Reporting

IND AS 109 governs the accounting and reporting of financial instruments in India. It is based on the international standard IFRS 9 and lays out principles related to:

• Recognition and derecognition of financial instruments
• Classification of financial assets and liabilities
• Measurement at amortised cost, fair value through profit or loss (FVTPL), or fair value through other comprehensive income (FVTOCI)
• Impairment using the Expected Credit Loss (ECL) model
• Hedge accounting

For an asset to fall under the scope of IND AS 109, it must be a financial asset — meaning it gives the entity a contractual right to receive cash or another financial asset from another party.

Do Crypto-assets Qualify as Financial Instruments?

Most commonly traded crypto-assets like Bitcoin, Ethereum, and other similar tokens do not meet the definition of a financial instrument under IND AS 109.

Here’s why:

• They are not backed by any issuer or counterparty.
• They do not provide a contractual right to receive cash or financial benefit.
• They function more like commodities or intangible assets than financial assets.

Therefore, for most entities simply holding cryptocurrency as an investment or for speculative purposes, IND AS 109 is not the applicable standard.

Then Where Do These Assets Fit?

Depending on the intent and business model, crypto-assets are usually accounted for under one of the following:

IND AS 38 – Intangible Assets

If the entity holds crypto-assets as long-term investments or strategic reserves without an intent to trade them frequently, they are typically treated as intangible assets.

IND AS 2 – Inventories

If the business model involves frequent buying and selling of crypto-assets — for example, in the case of a crypto exchange or a trading business — these may be treated as inventories under IND AS 2.

Example:

• A crypto exchange = Inventory under IND AS 2
• A startup investing surplus funds in Bitcoin = Intangible under IND AS 38

When Does IND AS 109 Apply in Crypto Context?

While traditional crypto-holdings don’t fall under IND AS 109, there are specific scenarios where crypto-related contracts or instruments may qualify as financial instruments or derivatives.

1. Crypto-Settled Derivatives

Contracts involving future settlement in crypto, such as forwards, options, or swaps, may meet the definition of derivatives under IND AS 109 if they have:

• An underlying variable (e.g., the price of Bitcoin)
• A notional amount (e.g., 100 BTC)
• Future settlement without initial investment

2. Tokenized Debt or Security Instruments

Security tokens that represent debt instruments, equity shares, or convertible securities on blockchain platforms may qualify as financial instruments if they contain enforceable contractual rights.

3. Smart Contracts with Embedded Financial Obligations

Blockchain-based smart contracts that involve automated payments, revenue sharing, or repayment obligations may be considered financial instruments if they include contractual rights and obligations.

Key Risks and Challenges in Practice

The biggest challenge companies face is uncertainty. With no specific standard issued by ICAI exclusively for crypto-assets, accountants and auditors must rely on interpretation and judgment — which leads to inconsistent treatment.

Common issues include:

• Difficulty in fair valuing volatile crypto-assets
• Lack of guidance on impairment testing
• Challenges in determining reliable market prices
• Inadequate audit trails and transaction documentation
• Unclear classification between intangible, inventory, and financial instrument
• Potential regulatory scrutiny or audit qualifications

What Should Finance Teams and Auditors Do?

Some best practices include:

• Define the purpose and nature of holding crypto-assets
• Review contractual terms of tokens or blockchain agreements
• Identify the appropriate accounting standard based on economic substance
• Document valuation methodology and perform regular fair value assessments
• Maintain an audit trail of crypto transactions and holdings
• Prepare technical memos to support classification decisions

Conclusion

Crypto-assets may be new, but the principles of sound financial reporting are not. Even in the absence of a dedicated crypto standard, IND AS 109 can be applicable in certain crypto-linked scenarios — particularly when contracts carry financial characteristics or derivative features.

Is your financial reporting ready for the complexities of digital assets?