In a sudden move, South Korean regulators have issued strict guidelines for crypto firms operating in the nation. Reportedly, the upcoming set of guidelines is a collaborative efforts of the two primary regulators prioritising investors’ interest and accountability.
According to local media reports, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have prepared guidelines, ensuring compliance with the International Financial Reporting Standards (IFRS). The regulators intend to establish comprehensive supervisory guidelines for accounting standards related to various transactions and stages involving virtual assets.
Reportedly, one of the primary issues acknowledged by the upcoming framework is the timing of revenue recognition for companies issuing digital assets. Sources reveal that previously different criteria were applied by each issuing agency, leading to discrepancies and difference of opinions between companies and auditors.
As per local media reports, these guidelines specify that revenue from the sale of digital assets will be recognized only after the company fulfills all requirements to virtual asset holders. Notably, until such requirements are fulfilled, the payments received will be accounted for as liabilities.
Using these rules, the regulators aim to promote reliable and useful information, facilitating comparisons between companies and ensuring greater transparency in the accounting practices related to virtual assets.
Further, the framework explains the need for clear description of the issuing company’s requirements to avoid retroactive changes that might potentially delay revenue recognition. The guidelines also talk of the treatment of stolen assets.
To this, the framework states that if an asset is classified as a liability in the issuer’s financial statements and subsequently stolen through hacking, it must be unconditionally compensated. However, if it is counted as customer’s asset, the liability for damages exists, but there is no mandate to reimburse the stolen amount.
Further, the elaborate set of guidelines mention the recognition of development costs associated with virtual assets and platforms. In regards to this, the framework states that unless clear grounds are provided to classify such costs as intangible assets based on the standards, they will be treated as expenses when incurred.
Additionally, the framework establishes six stringent requirements for the recognition of development costs, mandating evidence for compliance. Notably, meeting all of these requirements is not going to be a piece of cake and going to pose challenges for firms.
Considering the international trends and the level of legal property rights protection for customers, the guidelines suggest the recognition of assets and liabilities based on economic control. Hence, factors like users’ ability to claim legal property rights and operators’ rights to freely utilize entrusted virtual assets will determine whether they are recognized as assets or liabilities of the operator.
Currently, South Korean authorities plan to seek feedback from stakeholders, like firms, virtual asset operators, and accounting firms, over a two-month period. Then the gained feedback will be considered before finalizing the framework for supervision.
Reportedly, the final set of guidelines and standards are expected to be announced and implemented during October and November. This would come following deliberation and resolution by the Accounting System Deliberation Committee and the Securities and Futures Commission. After the publishing of these standards, the Accounting Supervision Guidelines will take immediate effect upon publication.
Troubled by the increasing crimes and threats from digital assets, South Korea has been taking significant steps to regulate the sector. Recently, the parliament passed a legislation titled “Virtual Asset User Protection” prioritising investors safety and prevent incidents that jeopardise customers’ funds along with prioritises investors safety and prevent incidents that jeopardise customers’ funds.
The conditions for these digital assets companies include the need to insure customer funds, hold a certain percentage of reserve capital, and keep necessary records. Additionally, the regulators have also expedited the regulation process and especially stablecoin after the crash of the tokens.