FASB Issues Accounting Standards for Crypto Assets

At a glance

• Main takeaway: On December 13, 2023, the Financial Accounting Standards Board (FASB) issued an accounting standards update (ASU) for certain crypto assets. Adoption is required in 2025. Early adoption is permitted. 
• Impact on your business: The new standard requires certain crypto assets to be accounted for at fair value.
• Next steps: Aprio’s Technology and Blockchain CPA Services team can help you implement the new accounting standard now.

Schedule a consultation with Aprio today.

The full story:

On December 13, 2023, the Financial Accounting Standards Board (FASB) issued an accounting standards update (ASU 350-60) to improve the accounting for, and disclosure of, certain crypto assets. The ASU is in response to feedback from stakeholders, which indicated that improving crypto asset accounting should be a top priority for the Board.

What’s changing from current standards

Under current U.S. Generally Accepted Accounting Principles (GAAP), crypto assets within the scope of the proposed ASU are accounted for as indefinite-lived intangible assets. Those assets are tested for impairment. If the carrying amount of the asset exceeds its fair value, an entity is required to recognize an impairment loss and reduce the carrying amount of the asset to its fair value. Subsequent increases in the carrying amount of the asset and reversal of an impairment loss are prohibited.

The new ASU requires that an entity measure certain crypto assets at fair value in the statement of financial position each reporting period and recognize changes in fair value in net income. The amendment also requires that an entity provide enhanced disclosures for both annual and interim reporting periods, which will provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings.

The new standard is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, for all entities. The Board also affirmed the proposed requirement to permit early adoption.

ASU requires enhanced disclosures

The ASU also requires that an entity present crypto assets measured at fair value separately from other intangible assets in the balance sheet and changes in the fair value measurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement (or statement of changes in net assets for not-for-profit organizations).

For annual and interim reporting periods, the ASU requires that an entity disclose information such as the name, cost basis, fair value, and number of units for each significant crypto asset holding, and the aggregate fair values and cost bases of the crypto asset holdings that are not individually significant.

For annual reporting periods, an entity is also required to disclose a roll forward of activity in the reporting period for crypto asset holdings, including additions, dispositions, gains, and losses. This provision of the guidance, the requirement to disclose the cost basis, requires companies still maintain this data, which has been difficult and onerous for some.

Standard could present challenge for companies

Reporting crypto assets at fair value could present challenges for companies, especially those that hold a large number of different types of crypto assets.

The valuation of crypto assets can be volatile, with significant price fluctuations in a short period. Additionally, determining the fair value of illiquid or thinly traded crypto assets may require significant judgment and estimation.

Companies may need to invest in specialized software or seek external valuation expertise to comply with the proposed ASU’s fair value measurement requirements. Moreover, companies will need to ensure that they have robust internal controls to validate the completeness and accuracy of the data used to determine the fair value of their crypto assets.

‘Book vs. tax’ difference could arise for U.S. companies

In the U.S., the IRS treats cryptocurrencies as property for tax purposes. Under the standard, companies are required to measure and recognize changes in fair value in their financial statements, which creates a book vs. tax difference, as tax will not be recognizing any unrealized gains or losses. Additionally, the enhanced disclosures required by the ASU may provide the IRS with more information to enforce compliance with tax laws related to cryptocurrencies.

Generating additional book-tax differences will also give rise to implications on the company’s financial statements. This will necessitate the evaluation of further permanent and temporary adjustments, consideration of their impact on tax attributes, assessment of deferred taxes, uncertain tax positions, and the inclusion of relevant financial statement footnote disclosures.

It is important for businesses to remain current on developments in both accounting standards and tax laws to ensure compliance and avoid any potential penalties.

The bottom line

The FASB’s ASU on the accounting for, and disclosure of, certain crypto assets improves financial reporting by showing the true balance sheet of companies that previously showed amounts not useful to users. However, the amendments come with challenges, including the valuation of thinly traded tokens and onerous disclosure requirements.

Despite the challenges, the new standard will likely provide investors with more relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings.

Aprio’s technology and blockchain accounting team is here to help answer your questions about the standard and provide assistance adopting it at your company.

Connect with an Aprio team member today to learn more.

Additional Resources

Could Two Common Financial Controls Have Prevented the Fall of FTX?

Government Regulation of Cryptocurrencies and Other Digital Assets

Big Changes for the Crypto World Part 2: How the Proposed Provisions in the Build Back Better Act Will Impact Cryptocurrency