Challenges of recognizing and reviewing digital assets as an intangible asset in the context of digital transformation: A critical analytical study in light of literature review and professional publications

Abstract

The rapid acceleration of the digital business environment has introduced novel economic resources collectively known as digital assets, encompassing cryptocurrencies, digital tokens, and non-fungible tokens (NFTs). The proliferation of these assets has created profound accounting and auditing challenges regarding their economic characterization, classification, recognition, measurement, disclosure, and verification, particularly given the absence of a single, unified international accounting standard covering all digital asset classes. This study critically analyzes the challenges associated with recognizing and classifying digital assets as intangible assets under International Financial Reporting Standards (IFRS), specifically focusing on International Accounting Standard (IAS) 38, Intangible Assets, and the relevant agenda decision by the IFRS Interpretations Committee (IFRIC 2019), alongside comparative insights from recent US GAAP developments (FASB ASU 2023-08). Furthermore, the study examines the auditing implications of digital asset characteristics, notably verifying ownership and technical control, assessing custody and cybersecurity risks, and gathering sufficient appropriate audit evidence. Adopting a critical descriptive-analytical approach, the study evaluates academic literature, professional pronouncements, and international accounting and auditing standards. The findings reveal that the application of IAS 38 varies according to the asset's specific economic rights and business model; cryptocurrencies held for sale in the ordinary course of business fall under IAS 2, whereas IAS 38 applies in other contexts. However, relying on historical cost less impairment under IAS 38 creates a conceptual mismatch with market dynamics and fair value accounting trends. The study further highlights that digital assets present unique operational hurdles for auditors, particularly regarding establishing control via private keys, evaluating third-party custody risks, and navigating decentralized verification mechanisms. The study recommends formulating specialized, agile international accounting and auditing guidance, enforcing enhanced narrative disclosures around risks and valuation judgments, and bolstering the technological competencies of accountants and auditors in blockchain architecture and cybersecurity.