FASB Excludes NFTs, Some Stablecoins from Crypto Accounting Project

For years, companies and investors had asked the FASB for rules on how to account for and disclose their holdings of bitcoin and other digital assets, and for years the standard-setter had declined to do so, saying investments in crypto were not widespread among companies. In May, however, the FASB added the crypto project to the technical agenda that sets the priorities for regulations.

On Wednesday, the board outlined its criteria for crypto assets to be covered by a new rule. The subset of digital assets under the project will include those that are intangible, i.e. non-financial assets that lack physical substance, and that do not have contractual rights to cash flows or ownership of goods or services. The assets must also be fungible, meaning they are interchangeable and not unique.

The FASB did not say which specific cryptoassets it would exclude from the project’s scope. However, the criteria indicate that NFTs – digital receipts for items such as art, baseball cards or digital music that can also provide access to live-streamed concerts and other services – and certain stablecoins – cryptocurrencies linked to assets such as the US dollar – will not make the cut.

NFTs are, by their definition, non-fungible, and may have rights to underlying goods, services or other assets. And certain stablecoins are intangible assets.

Popular cryptocurrencies, such as Bitcoin and Ethereum, will fall within the scope of the rule.

FASB board member Susan Cosper defended the exclusion of NFTs from the project, saying they could slow it down.

“It’s not pervasive or material at this point,” she said, referring to companies’ investments in NFTs. “It’s certainly something we can focus on later if necessary.”

Given their exclusion from the project, accounting for NFTs and certain stablecoins is likely to remain a headache for the companies that own them. Those that do generally view crypto as indefinite-lived intangible assets, comparable to website domains and trademarks, based on non-binding guidelines from the Association of International Certified Professional Accountants.

According to these guidelines, companies must assess the value of these assets at least once a year. Companies are required to write down the value if it falls below the purchase price, depending on the outcome of their impairment test. If the value rises, however, companies can record a gain only when they sell the asset, not if they continue to hold it.

Companies say this approach does not reflect their financial condition or operating results, given the exceptional volatility of many cryptoassets, and are pushing instead for fair value accounting rules. Under this type of accounting, companies recognize losses and gains in value immediately and treat digital assets as financial assets, not as intangible assets.

The FASB has said it will consider fair value accounting, among other options, as part of the current project. The standard may apply to US public and private companies, as well as to non-profit organizations.

In recent months, individual investors as well as analyst groups, such as the Alliance of Concerned Investors and the CFA Institute, have pushed for the FASB to set crypto accounting and disclosure rules to provide a clearer picture of companies’ investments.

The FASB wants to conclude initial discussions about its crypto project by the end of the year, when the board will vote on whether to issue a proposal, a spokeswoman said.

Write to Mark Maurer at [email protected]