New Accounting Standard for Crypto Assets

New Accounting Standard for Crypto Assets

In the ever-changing landscape of cryptocurrency (crypto), Financial Accounting Standard Board (FASB) has set a new rule on the accounting for and disclosure of crypto assets. FASB is responsible for setting accounting standards for public and private businesses in the United States. The rule creates new guidance for businesses holding crypto assets and provides more details to investors.

Backstory of Accounting for Crypto

Previously, the U.S. lacked specific accounting or disclosure rules for crypto assets. Businesses were classifying crypto assets as indefinite-lived intangible assets, like intellectual property such as copyrights, which follows a cost-less-impairment accounting model. This model does not provide investors, lenders, creditors and other allocators of capital with decision-useful information. Businesses and accountants have been pushing for FASB to make a rule so it would allow them to recognize losses and gains immediately and treat digital assets as financial assets instead of as indefinite-lived intangible assets.

What Are the Main Amendments of the New Standard?

The objective of the amendments is to provide investors and other stakeholders with more decision-useful information, which mirrors the economic value of crypto assets and a business’ financial situation while reducing the complexity and costs associated with accounting for impairments without reducing the accuracy of the information. The amendments in the Accounting Standards Update (ASU) applies to all assets that:

  1. Meet the definition of intangible asset as defined in the FASB Accounting Standards Codification
  2. Do not provide the asset holder with enforceable rights to or claims on underlying goods, services or other assets
  3. Are created or reside on a distributed ledger based on blockchain or similar technology
  4. Are secured through cryptography
  5. Are fungible
  6. Are not created or issued by the reporting entity or its related parties

Public and private companies’ financial statements will have to disclose their crypto assets, separating them from intangible assets such as patents and trademarks. Private businesses are required to adhere to the same guidelines in all financial reports they prepare. Businesses will have to include gains and losses on their crypto assets in their net income. The amendment also requires that a business provide disclosures about significant holdings, contractual sale restrictions and changes during the reporting period.  

What Cryptocurrency Does Not Fall Under the New Standard

Assets that have contractual rights to cash flows or ownership of goods or services wouldn’t fall under the requirements. These would include:

  • Wrapped tokens, which allow crypto assets from one blockchain to be presented and used on a different blockchain
  • Nonfungible tokens (NFTs)
  • Certain stablecoins

When Does the New Rule Take Effect?

ASU 2023-08 will be effective for all businesses for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is allowed for both interim and annual financial statements that have not yet been issued (or made available for issuance). If amendments are adopted during an interim period, they must be implemented at the beginning of the fiscal year that encompasses said interim period.

If you have any questions about the new accounting method for crypto asset, contact a Brown Plus advisor.

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