FASB issues long-awaited exposure draft on accounting for crypto assets
The Financial Accounting Standards Board (FASB) on Thursday published an exposure draft of its proposed accounting rules on how companies should report certain types of cryptoassets and digital currencies.
Last October, the FASB recommended that fair value accounting was the appropriate method for cryptoassets, which was a notable 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.
“During the FASB’s recent agenda consultation process, stakeholders from all professional backgrounds identified digital assets as a top priority area for the board to address,” FASB Chairman Richard Jones said in a statement. “We responded to this feedback with the proposed ASU, which would provide investors with greater transparency about the fair value of cryptoassets held by entities, as well as additional disclosures about the types of cryptoassets held and changes in those holdings.”
The FASB said it received feedback that accounting for crypto-assets as indefinite-lived intangible assets, which is a no-cost impairment model, does not provide investors, lenders, creditors and other capital allocators with useful decision-making information or reflect the underlying economics of these assets.
The exposure draft states:
In particular, reflecting only the reductions, but not the increases, in the value of cryptoassets on the balance sheet until they are sold does not provide relevant information that reflects (1) the underlying economics of those assets and (2) an entity’s financial position. . Some investors also requested additional disclosures about the types of crypto assets held by entities and changes in those holdings.
In addition to better reflecting the economics of crypto-assets, measuring these assets at fair value would potentially reduce the costs and complexity associated with using the current no-cost write-down model.
The changes in this proposed ASU will apply to cryptoassets that meet all of the following criteria:
- Meet the definition of “intangible asset” as defined in the FASB Accounting Standards Codification Master Glossary;
- Do not give the asset holder enforceable rights to, or claims to, underlying goods, services or other assets;
- Is created or resides on a distributed ledger based on blockchain technology;
- Is secured through cryptography;
- Are fungible; and
- Is not created or issued by the reporting entity or its related parties.
Bitcoin and Ethereum would fall within these guidelines, but non-fungible tokens (NFTs) and certain stablecoins would not.
The proposed rules would improve the accounting for certain cryptoassets by requiring an entity to measure those cryptoassets at fair value each reporting period with changes in fair value recognized in net income, according to the FASB. The exposure drafts also state:
An entity will be required to recognize transaction costs of acquiring a crypto-asset, such as commissions and other related transaction fees, as an expense when incurred, unless applicable industry-specific guidelines require the entity to capitalize these costs.
The changes in this proposed update would also require an entity to present (1) cryptoassets measured at fair value separately from other intangible assets on the balance sheet and (2) changes in fair value measurement of cryptoassets separately from changes in the carrying amount of other intangible assets in the income statement ( or statement of changes in net assets for non-profit organisations).
Although the changes in this proposed update will not otherwise change the presentation requirements for the statement of cash flows, if cryptoassets are received as non-cash consideration in the ordinary course of business (for example, in exchange for the transfer of goods and services to a customer) and are converted almost immediately to cash, an entity may be required to classify these cash receipts as cash flows from operating activities.
The proposed changes would also improve the information provided to investors about an entity’s holdings of cryptoassets by requiring disclosure of significant holdings, restrictions and changes in those holdings, according to the FASB.
Stakeholders are encouraged to review and provide comments on the proposed ASU by June 6.
