Financial Accounting: Theory and Practice Assignment… 1 answer below »

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1 ACCT3321 Financial Accounting: Theory and Practice Semester 1, 2018 Individual Research Assignment (20% of final mark) Accounting for Bitcoin Background There is currently debate about the accounting treatment of cryptocurrencies in both academia (Raiborn & Sivitanides 2015; Tan & Low 2017; Yermack 2015) and industry (PWC 2017). There have been calls for the International Accounting Standards Board (IASB) (AASB 2016) and the Financial Accounting Standards Board (FASB) (Thompson Reuters 2017) to provide guidance. This assignment focuses on the “biggest and best known digital currency” (AASB 2016, p. 6) – Bitcoin. There are many ways in which companies may use Bitcoin and therefore need to account for Bitcoin transactions. These uses include the following. 1. Companies may invest in Bitcoin (short-term, long-term, speculative, as a hedge). 2. Companies may receive and make payments in Bitcoin (e.g. Microsoft, Whole Foods, PWC AsiaPacific started accepting bitcoin as payment for advisory services in 2017 (Business Insider Australia 2017) ) 3. Companies may mine Bitcoin (such as Slush Pool (Cryptocompare 2018)) 4. Companies may be investment companies, investing client money in Bitcoin. This assignment is concerned with item 1 above – where a company holds Bitcoin as an investment. There is debate as to how Bitcoin transactions should be accounted for, as shown in Table 1. Table 1: Debated accounting treatments of Bitcoin Nature of Bitcoin Relevant Australian accounting standard Cash or Cash Equivalents AASB 107 Statement of Cash Flows Financial Instruments AASB 139 Financial Instruments: Recognition and Measurement or AASB 9 Financial Instruments Inventory AASB 102 Inventories Intangible assets AASB 138 Intangible Assets 2 Required: Part 1 (90 marks) You are a recent graduate working for a Big 4 accounting firm and your manager has asked you to prepare a report (max 1,500 words) which is to be presented to the Chief Financial Officers (CFO) of the firm’s major clients. The report should: a. Discuss whether Bitcoin meets the definition and recognition criteria of an asset in the Conceptual Framework. (5%) b. Discuss and critique the arguments for and against accounting for Bitcoin as i) inventory and ii) an intangible asset. (50%) c. Provide and explain the journal entries on initial and subsequent recognition of the Bitcoin if the i) inventory standard and ii) intangible asset standard applies. Consider subsequent increases and decreases in the market price of Bitcoin. (25%) d. Explain the implications for earnings management depending on whether Bitcoin is accounted for as i) inventory and ii) an intangible asset. (20%) You should use appropriate headings to organise your material, provide references to accounting standards (including specific paragraphs) and cite relevant academic and practitioner articles. References should be in-text (i.e. within the body of the report) as well as in the Reference list at the end of the report. Part 2 (10 marks) You have a friend who has asked you to explain what Bitcoin and blockchain means. Your friend is a teacher with no accounting knowledge. Your written email response (max 250 words) should be much less formal and should be in a style and format that is easily understood by a non-accountant. 3 Further details Submission of assignments • Please upload your word document to LMS by 5pm on Wednesday 2 May 2018 (week 9). • Please state the word count for part 1 and part 2 at the beginning of the assignment. • Please use 12 font, 1.5 line spacing and 2.5 cm margins on all sides. • Total word limit for the report is 1,500 words ONLY (excluding reference list) and 250 words for the email. Penalties apply for going over the word limit. Words in tables, in-text referencing and graphics need to be included in the word count. Referencing Reference all material (thoughts, ideas, facts) taken from other sources using the Harvard referencing style. Please include in-text referencing as well as a reference list of all sources cited at the end of the report. Look at the in-text referencing used in the “Background” section of this document as well as the “References” section at the end of the document as an example of referencing. Please use a number of relevant references, rather than simply giving your opinion. The number of references, spread across academic and practitioner literature should be at least ten. You may also reference material sourced from relevant Youtube videos. The assignment calls for you to discuss and critique what others (in academia and industry) are suggesting about accounting for Bitcoin. You may also apply your own knowledge in reference to accounting standards. You need to use a number of references to show that you consulted relevant academic and practitioner articles. A starting point is to read the material in the reference list at the end of this document and watch youtube videos on Bitcoin and blockchain. Report format There are a variety of formats for a report. We will be looking to see that the format you use includes the following important aspects: 1) A cover page which contains: • The title of the report • Report date • Who prepared the report • For whom the report was prepared 2) A contents page (second page) which states the headings used with page numbers e.g. Table of contents Introduction p.2 Conclusion p.5 References p.7 You may include graphics and tables if it assists with communication. The words are included in the word count. 4 Marking grid As shown on the marking grid (Table 2) below, both your report and email will be marked according to content (worth 60% of the marks) and clarity of communication (40% of the marks). Table 2: Marking grid Score (%) Please tick the appropriate boxes Weight Weak Satisfactory Good Very good Excellent

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