FASB determines accounting method for crypto assets

The Financial Accounting Standards Board (FASB) ruled on October 12 that companies should measure cryptocurrency assets, such as Bitcoin and Ethereum, using fair value accounting, with gains and losses recorded in comprehensive income for the current period.

Although the FASB is still a long way from finalizing regulations for cryptoassets, yesterday’s decision is a major development because there are currently no accounting or disclosure rules specific to cryptoassets. Most crypto assets are accounted for as indefinite-lived intangible assets, such as trademarks, in the absence of crypto-specific US GAAP, KPMG noted in a summary.

“While this may seem like a minor technical shift, it will actually be a big change for businesses and for digital assets in general, as businesses will no longer be required to list Bitcoin and other crypto assets at their lowest value since purchase on their balance sheet. . In short, this will be a major new driver of crypto adoption,” Pat White, CEO and co-founder of Bitwave, said in an emailed statement.

In its discussion Wednesday on accounting for and disclosing cryptoassets, the FASB decided to require a company to:

• Measure cryptoassets at fair value using the guidance in Topic 820, Measurement of fair value.
• State increases and decreases in fair value in comprehensive income each reporting period.
• Enter certain costs incurred to acquire cryptoassets, such as commissions, as an expense (unless the entity follows specialized industry measurement guidelines that require otherwise).

KPMG noted in a brief on the FASB’s decision that fair value measurement for crypto assets will be used by both public and private companies.

During an invitation period to comment in 2021 on what types of projects the FASB should prioritize, more than 400 of the roughly 500 comment letters the FASB received dealt with the accounting for cryptoassets, according to KPMG:

Almost all of the ~500 digital asset commenters suggested that the FASB undertake a project to require or permit cryptoassets with an “readily determinable fair value” such as bitcoin to be measured on a recurring basis at fair value, with realized and unrealized gains and losses recognized in earnings in the current period. Primarily, these respondents commented that the accounting model for indefinite-lived intangible assets ASC 350-30 results in accounting and reporting that is not useful for decision-making by investors and other users of the financial statements because it does not reflect the economic nature of these assets or companies’ reasons for investing in them .

Based on the feedback it received, the FASB added a project to its technical agenda in May to improve the accounting for and disclosure of certain cryptoassets.

In late August, the board determined five criteria that cryptoassets held by an entity must meet in order to be within the scope of the FASB’s cryptocurrency project. Bitcoin and Ethereum would fall within these guidelines, but non-fungible tokens (NFTs) and certain stablecoins would not.

The FASB will consider what must be included in the presentation and disclosures of crypto assets at a future meeting.