FASB Publishes Accounting Standards Update on Crypto Assets | Practical Law

FASB Publishes Accounting Standards Update on Crypto Assets | Practical Law

The Financial Accounting Standards Board (FASB) published an accounting standards update (ASU) to improve the accounting for and disclosure related to certain crypto assets.

FASB Publishes Accounting Standards Update on Crypto Assets

Practical Law Legal Update w-041-7610 (Approx. 6 pages)

FASB Publishes Accounting Standards Update on Crypto Assets

by Practical Law Finance
Published on 20 Dec 2023 • USA (National/Federal)
The Financial Accounting Standards Board (FASB) published an accounting standards update (ASU) to improve the accounting for and disclosure related to certain crypto assets.
On December 13, 2023, the Financial Accounting Standards Board (FASB) published an accounting standards update (ASU) designed to improve the accounting for and disclosure related to certain crypto assets. The ASU amends the FASB Accounting Standards Codification (Codification).
According to the ASU, for annual reporting periods, an entity must disclose the following information:
  • A rollforward, in the aggregate, of activity in the reporting period for crypto asset holdings, including additions, dispositions, gains, and losses.
  • The difference between the disposal price and the cost basis, and a description of the activities that resulted in the dispositions, for any dispositions of crypto assets in the reporting period.
  • The income statement line item in which those gains and losses are recognized, if gains and losses are not presented separately.
  • The method for determining the cost basis of crypto assets.
According to the ASU, any asset that meets all of the following criteria is subject to the Codification amendments in the ASU:
  • It meets the definition of intangible assets as defined in the Codification.
  • It does not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets.
  • It is not created on and does not reside on a distributed ledger based on blockchain or similar technology.
  • It is not secured through cryptography.
  • It is fungible.
  • It is not created or issued by the reporting entity or its related parties.
An entity is required to subsequently measure assets that meet the above criteria at fair value with changes recognized in net income each reporting period. In addition, the ASU requires that an entity present in its income statement:
  • Crypto assets measured at fair value separately from other intangible assets in the balance sheet.
  • Changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets.
The Codification amendments require that an entity measure crypto assets at fair value in the statement of financial position each reporting period and recognize changes from remeasurement in net income. Parties must also provide enhanced disclosures for both annual and interim reporting periods to provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto-asset holdings. According to the ASU, fair value measurement aligns the accounting required for holders of crypto assets with the accounting for entities that are subject to certain industry-specific guidance, such as investment companies, and eliminates the requirement to test those assets for impairment, reducing the associated cost and complexity of applying the current FASB guidance.
The amendments do not otherwise change the presentation requirements for the statements of cash flows, but they do require specific presentation of cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business and are converted nearly immediately into cash.
The ASU is effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. According to the ASU, if an entity adopts the ASU in an interim period, it must then adopt the ASU as of the beginning of the fiscal year that includes that interim period.
According to the ASU, stakeholders stated that the current accounting (except as provided in generally accepted accounting principles (GAAP) for certain specialized industries) for holdings of crypto assets as indefinite-lived intangible assets, which is a cost-less-impairment accounting model, does not provide investors, lenders, creditors, and other allocators of capital with decision-useful information. According to the ASU, accounting for only the decreases but not the increases in the value of crypto assets in the financial statements until they are sold does not provide relevant information that reflects the underlying economics of those assets and an entity's financial position.