What are the potential limitations of the provisions

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Reference no: EM133433883

Question: Abiglen Financial Services (AFS) is an Australian investment firm with its headquarters located in Melbourne. Over the past 10 years, the firm has only engaged in a traditional and conventional form of investment where majority of the firm's investments are held in shares, government bonds and corporate bonds. With the recent appointment of a new Chief Executive Officer (CEO), John Deadly, the firm has revised its strategy for investment and adopted a high growth strategy for most of its investment portfolios.

In line with the change in investment strategy, AFS is considering an inclusion of cryptocurrency in its investment portfolio. The following proposal has been made by the Chief Financial Officer (CFO) regarding the potential investment in cryptocurrency. The firm intends to hold two types of investments in cryptocurrency: one investment in cryptocurrency that is held for trading and another investment in cryptocurrency which is held for a long term. Additionally, 5% of the firm's holding in cryptocurrency will be held for transactional purposes to help facilitate the firm's engagement in international transactions with minimal cost.

However, the firm has limited experience in the cryptocurrency market. Hence, the CEO is concern about issues of recognition and measurement of cryptocurrency in the financial report of the firm and has requested for some guidance from the accounting and finance team with justified recommendations on how AFS must account for its potential investments in cryptocurrency.

To ensure that the relevant issues are discussed, the head of the accounting and finance team has formulated the following questions to be addressed:

(a) Which provision of the accounting standard would provide an appropriate basis for the recognition and measurement cryptocurrency investment that held for transactional purposes?

(b) Which provision of the accounting standard would provide an appropriate basis for the recognition and measurement cryptocurrency investment that is held for trading purposes?

(c) Which provision of the accounting standard would be an appropriate basis for the recognition and measurement of cryptocurrency?

(d) What are the potential limitations of the provisions of the accounting standards discussed in in part a, b and c above? What recommendations would you propose for stated limitations?

You are a member of the accounting and finance team and have been tasked with the responsibility of preparing the briefing note for the CEO.

Reference no: EM133433883

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