FASB Votes to Move Forward with Updated Crypto Asset Accounting Guidance

Scope

These finalized changes impact crypto assets that meet the following criteria. If a crypto asset does not meet these criteria, then they are not eligible for the new fair value accounting treatment.

To be within the scope of this new accounting guidance, a crypto asset must:

• Meet the definition of an intangible asset

• Not represent a contract or provide enforceable rights

• Be created or reside on a distributed ledger based on blockchain or similar technology

• Be secured through cryptography

• Be fungible

• Not be created or issued by the reporting entity or its related parties

Key Takeaways

• Fair Value Treatment - Crypto assets will be reported at fair value with changes in fair value flowing through earnings. This represents a significant change from current accounting guidance, which requires businesses to hold crypto assets at cost less impairment. Under the new guidance, in-scope assets will no longer require analysis for impairment and recognition of impairment expense. Rather, any changes in fair value (both upward and downward) will be reflected in earnings. Non-fungible tokens (NFTs) and issuer tokens are not within the scope of this project and would not be eligible for fair value treatment.

• Wrapped Tokens - The Board determined that wrapped tokens will not be included within the scope of this new accounting guidance. This means that wrapped tokens will continue to follow the legacy intangible asset accounting treatment, requiring companies to hold wrapped tokens on their balance sheet at cost less impairment and recognize realized gains and losses when these assets are disposed of. 

• Balance Sheet and Income Statement Presentation - A company will report their crypto activity on both the balance sheet and income statement as separate line items. This will enable stakeholders to easily identify a company’s crypto asset activity. 

• New Disclosure Requirements - Disclosures are now required for crypto asset holdings and periodic activity to provide transparency in financial reporting. See below for an overview of these requirements. For a more detailed discussion, please review our prior disclosure requirement article:

  • Significant Holdings: On a quarterly basis, companies will present significant asset holdings, which includes asset name, quantity held, cost basis, and fair value. 

  • A reconciliation or roll-forward of crypto assets for the reporting period: On an annual basis, beginning asset balances, additions, disposals, gains/losses (whether realized or unrealized), etc. that have occurred during the period to arrive at the ending asset balance for the period. In the event a company immediately converts non-cash consideration into cash in the ordinary course of business, this could be eliminated from the roll-forward reporting.

  • The fair value of restricted assets and the nature of those restrictions: A company may have tokens that are locked up and otherwise inaccessible to them. In that case, the company would need to recognize this in the disclosures so users of financial statements are able to gain an understanding of which assets are liquid. 

  • Fair value disclosures: Companies will need to follow the existing disclosure requirements outlined in ASC 820 for fair value measurements more broadly, which specifically includes classification levels within the fair value hierarchy and disclosures of related party transactions.

• GAAP vs. IFRS - These updates to US GAAP generally result in greater consistency with IFRS, but there are still differences that lie in the recognition, measurement, impairment, and accounting methodologies used to track and report cryptocurrencies. For more detail around alignment and differences between GAAP and IFRS, check out TaxBit's Blog. 

The accounting guidance applies to both public and private companies and represents a substantial improvement in accounting guidance for crypto assets, ensuring that financial reporting outcomes are better aligned with the economic realities of crypto assets with improved financial visibility.

Timeline and Next Steps

Now that the Board has determined to move forward, the FASB staff will proceed with the final drafting of the ASU. It is anticipated that this will be published in Q4 2023, with early adoption available immediately. Mandatory adoption will not be required until December 15, 2024.  

For businesses impacted by these accounting changes, there are important next steps to consider, including understanding what the impact to your organization is and identifying gaps in any existing accounting and reporting processes.  Potential gaps might include getting access to relevant pricing data, updating the chart of accounts in the general ledger to represent those fair value adjustments for crypto assets, or having a plan and process in place to execute on the required disclosures. 

Implement the TaxBit Accounting Suite to Get Compliant

At TaxBit, we are providing industry-leading solutions for digital asset accounting. Required accounting changes like those finalized by the FASB today can cause disruption to your business, especially without a clear plan to move towards compliance. TaxBit has been following the Board’s progress for 18+ months and is ready to help you navigate the new changes.

The TaxBit Accounting Suite has been purpose-built to stay up-to-date with the latest accounting requirements, and can immediately ready your business for the new accounting requirements. 

Contact us to learn more about the TaxBit Accounting Suite and how it can save your business time and money in the rapidly evolving web3 regulatory landscape.