FASB Proposes Fair Value Accounting for Certain Crypto Assets
Current Accounting Treatment and Summary of FASB Fair Value Proposal
Currently, most public entities account for holdings of crypto assets as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 requires that intangible assets be initially measured at cost and then subsequently evaluated for impairment at least annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Impairment losses are presented in comprehensive income and cannot be reversed for subsequent increases in value. There are certain exceptions to the intangible asset classification for specialized entities, including investment companies under ASC 946, Financial Services—Investment Companies and broker-dealers under ASC 940, Financial Services—Brokers and Dealers.
Both users and preparers of the financial statements have raised concerns that this traditional intangible asset model does not provide decision-useful information to investors or appropriately represent the economics of a holder’s investment in crypto assets. In response, the Financial Accounting Standards Board (“FASB”) initially met in May 2022 and added a project to its technical agenda to improve the accounting for and disclosure of certain digital assets. More recently, in March 2023, the FASB proposed adding a subtopic to ASC 350, requiring entities to measure certain in scope crypto assets at fair value with changes in fair value reflected in earnings each reporting period. The proposed Accounting Standards Update (“ASU”) applies to all entities (i.e., public companies, private companies, not-for-profit entities, and across all industries) that hold certain crypto assets that meet all of the following criteria:
- Meet the definition of intangible assets as defined in the Codification Master Glossary;
- Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets;
- Are created or reside on a distributed ledger based on blockchain technology;
- Are secured through cryptography;
- Are fungible; and
- Are not created or issued by the reporting entity or its related parties.
The proposed ASU does not apply to other crypto assets such as non-fungible tokens (NFTs), stablecoins that meet the definition of a financial instrument, and wrapped tokens.
What Does This Mean for You and Your Company?
The proposed ASU does not provide guidance on the initial measurement basis for acquired crypto assets that meet the above scoping criteria. Instead, other U.S. GAAP would apply. Additionally, transaction costs to acquire crypto assets (i.e., commissions and other related transaction costs) should be expensed as incurred, unless the entity is subject to other guidance requiring such costs to be capitalized. In-scope crypto assets would subsequently be measured at fair value with changes in fair value recognized in net income each reporting period.
Under the proposed ASU, entities would be required to present in-scope crypto assets measured at fair value separately from other intangible assets on the balance sheet, primarily due to the difference in measurement bases between crypto assets within the scope of the project and other intangible assets (i.e., cost less impairment). Changes in the fair value of crypto assets would also be presented separately on the income statement from changes in the carrying amount of other intangible assets (i.e., impairment and amortization). The proposed ASU would also require an entity to classify cash receipts from the sale of crypto assets received as noncash consideration in the ordinary course of business that are converted nearly immediately into cash as cash flows from operating activities.
Entities would be required to use a modified retrospective approach, recording a cumulative effect adjustment to equity at the date of adoption. Although the FASB has not established an effective date, the proposal would permit early adoption.
The FASB is seeking comments from stakeholders on the proposed ASU until June 6, 2023. The FASB plans to establish an effective date for the amendments after considering stakeholder input on the proposed ASU.
How Centri Can Help
It is imperative that you choose financial reporting experts who understand digital assets and financial reporting requirements. Our dedicated, skilled professionals collaborate with international and domestic token issuers, digital asset exchanges, including decentralized finance platforms, venture capital, miners, media, blockchain and enterprise platforms, and other leaders. This allows us to find solutions for your unique accounting needs. Please contact us to explore how our expertise aligns with the specific needs of your company.
 Wrapped tokens are tokenized representations of another crypto asset with the same value with additional features not contained in the original version, such as the ability to operate on another blockchain.
Partner | Digital Assets Practice Leader | CPA
Michael is a Partner at Centri Business Consulting and the leader of the firm’s Digital Asset Practice. He has more than 10 years of experience in the accounting treatment of various transactions, including complex debt and equity...
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Katie is a Managing Director at Centri Business Consulting. She has more than 10 years of experience specializing in advising clients on the accounting treatment of various transactions including complex debt and equity transactions, business combinations and acquisition accounting,...
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Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reporting, internal controls, technical accounting research, valuation, mergers & acquisitions, and tax, CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.
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