Distribution of Best Practices Planned After Finalizing Footnote Disclosure Proposal
NFT and CBDC Excluded from Scope
[Asia Economy Reporter Lee Jung-yoon] Financial authorities have finalized the virtual asset note disclosure plan and plan to distribute best practice cases.
On the 28th, the Financial Supervisory Service (FSS), Korea Accounting Standards Board (KASB), and Korean Institute of Certified Public Accountants (KICPA) jointly hosted a seminar on "Virtual Asset Accounting, Audit, and Supervision Issues." At this seminar, the FSS announced that it will finalize the virtual asset note disclosure plan after consultations with the Financial Services Commission and will distribute best practice cases after establishing new note disclosure basis provisions in the standards. However, it was tentatively concluded that non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) will not be included in the scope of virtual assets subject to note disclosure.
Kim Kyung-ryul, head of the International Accounting Standards Team at the FSS Accounting Management Bureau, said, "There are various accounting issues related to virtual assets, but accounting treatment and audit guidelines are insufficient," adding, "The need for information disclosure is increasing due to domestic virtual asset sales, the Terra-Luna incident, and FTX bankruptcy filing."
Regarding the method of market value estimation, he explained, "It is calculated by applying the prices from major domestic or overseas virtual asset exchanges," and added, "The reason for selecting the exchange and the name of the exchange should be stated together. Generally, exchanges do not have closing times, so prices for a specific period can be applied, and this needs to be consistently applied in the future."
Necessary note disclosures for developers include ▲ characteristics of developed virtual assets ▲ quantity developed and holdings by the developer ▲ accounting policies ▲ developer obligations ▲ sales of developed virtual assets ▲ development status, among others.
For holders, necessary items include ▲ accounting policies ▲ holding status, and for exchanges, necessary items include ▲ accounting policies and holding status ▲ virtual assets held in custody on behalf of customers.
As of the end of June this year, nine types of virtual assets issued by domestic listed companies through overseas subsidiaries were identified. Most were developed and issued as means of use for platforms such as games or portals. All domestically issued virtual assets recognized development costs as expenses rather than assets. Issuing companies held about 82% of their self-issued virtual asset volumes.
All nine domestically issued virtual assets experienced sales after development, among which three recognized revenue after sales, while the others did not recognize revenue.
Additionally, a total of 37 listed companies hold virtual assets, with 102 virtual assets held and a market value of approximately 404.7 billion KRW. The proportion of Bitcoin and Ethereum was confirmed to be 12.2%, while major domestically issued virtual assets such as Mavekseu (MBX), Klaytn (KLAY), and Wemix (WEMIX) accounted for 70.9%.
Information on audit guidelines for virtual assets was also introduced. Hwang Geun-sik, head of the Audit Standards Team at KICPA, explained, "It is difficult to understand the industry and companies, making it hard to identify significant misstatement risks," and "It is also difficult to judge the appropriateness of accounting treatment."
He emphasized the need for audits on the existence and ownership of virtual assets. He said, "The quantity on the books must be matched with blockchain records, but consideration is needed on how to verify blockchain records and whether publicly available blockchain explorers can be trusted," adding, "Test procedures should also consider whether there is access to the private keys of the public addresses held by the company."
Furthermore, he proposed substantive audit procedures for virtual assets, such as whether the virtual asset valuation accounting policies comply with standards, whether the fair value of virtual assets is determined according to the company's accounting policies and financial reporting system, and responses to risks of failing to identify or disclose transactions with related parties.
The current audit guideline is in draft form and is expected to be distributed to companies or accounting firms around the first half of next year after a public consultation process.
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