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FASB Issues Final Guidance on Crypto Assets – What This Means for Your Business

Accounting Treatment Background and Summary of FASB Fair Value Update

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, on December 13, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), which addresses the accounting and disclosure requirements of certain digital assets.  ASU 2023-08 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  the following criteria:

• Meets the definition of intangible assets as defined in the Codification Master Glossary;
• Does not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets;
• Is created or resides on a distributed ledger based on blockchain technology;
• Is secured through cryptography;
• Is fungible;
• Is not created or issued by the reporting entity or its related parties.

ASU 2023-08 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 [1].

What Does This Mean for You and Your Business?

ASU 2023-08 does not provide guidance on the initial measurement basis for acquired crypto assets that meet the scoping criteria above. 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 new standard, entities are 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). ASU 2023-08 also requires 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.

Furthermore, ASU 2023-08 establishes additional disclosure requirements for an entity’s significant holdings, reconciliation of crypto assets held during the period, and disclosure of any restrictions on the sale of crypto assets.

Entities are required to use a modified retrospective adoption approach, recording a cumulative effect adjustment to equity at the date of adoption. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, for all entities. Early adoption is also permitted.

[1] FASB Accounting Standards Update, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets

[1] Wrapped tokens are tokenized representations of another crypto asset with the same value, including additional features not contained in the original version, such as the ability to operate on another blockchain.

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.

Editor’s note: This article was originally published on October 19, 2023. It was updated on December 19, 2023.

Mike Andrusko

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 analysis, business combinations and acquisition accounting process integration. View Mike Andrusko's Full Bio

Katherine McShane

Managing Director | CPA

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, and lease accounting. She joined Centri in February 2018 and has assisted clients across several industries, including digital assets, financial services, healthcare, private equity, cannabis, and telecommunications. View Katherine McShane's Full Bio