NFTs and some stablecoins are excluded from the FASB’s crypto accounting review
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(Kitco News) – The Financial Accounting Standards Board (FASB) has unveiled the criteria for its upcoming review of crypto accounting, and there are some interesting exceptions to note, including non-fungible tokens and certain stablecoins.
In what is yet another recent example of regulators starting to act on crypto after years of dragging their feet, this decision by the FASB marks a concrete step toward a proposal and final rule on how to report cryptocurrency holdings.
Companies and investors have been asking for guidance from the FASB for several years now on how to account for and disclose their Bitcoin and digital assets, but the agency has declined to provide clarity.
That changed in May when the FASB added its “crypto-accounting review” (referred to as “the project”) to the technical agenda and then voted to consider setting clear rules for the accounting and disclosure of certain digital assets such as Bitcoin (BTC) and Ethereum ( ETH).
Fast forward to last Wednesday – the board has decided on the criteria that cryptoassets “owned by an entity must meet to be within the scope of the project.”
These criteria are as follows:
- Meet the definition of intangible asset as defined in the codification 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 or “blockchain”
- Is secured through cryptography
- Is fungible.
An intangible asset is a non-financial asset that lacks physical substance and does not have contractual rights to cash flows or ownership of goods or services.
As for which units will be included in the project, the board indicated that “all units will be within the scope of the project, and that through the remaining proceedings the board will assess the applicability of its decisions to these units.” It will also consider “potential measurement options for cryptoassets” at a future meeting.
Based on these criteria, non-fungible tokens (NFTs) are excluded from review as they do not satisfy criterion number five, while certain stablecoins that are backed by other assets or pegged to the US dollar qualify as intangible assets and do not meet the standards.
Since NFTs and stablecoins are two of the most popular and active subsets of the cryptocurrency industry, their exclusion is likely to cause headaches for companies that own them as to how to properly report their holdings.
In response to criticism about not including NFTs in the project, FASB board member Susan Cosper defended the decision: “It’s not pervasive or material at this point.” She left an opening for their consideration in the future; but notes “It’s certainly something we can focus on later if necessary.”
According to the current guidelines, companies are required to assess the value of these assets at least once a year and report on price declines if it falls below the purchase price. In cases where the value rises, companies can only record a gain when they sell the asset and not if they continue to hold it.
Concerned businesses have pushed back against those guidelines, calling instead for fair value accounting rules to apply to crypto holdings, which the FASB has said it will review as part of the current project.
It is the goal of the FASB to conclude the initial discussions about the crypto project by the end of the year, when the board will vote on whether to issue a proposal.
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