FASB Approves New Guidance on Certain Crypto Assets

AAFCPAs would like to make clients aware that in December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. Note: the amendments in ASU 2023-08 require that an entity measure “in-scope” crypto assets (as defined below) at fair value in the statement of financial position at each reporting period and recognize changes from remeasurements in net income.

Under current guidance, crypto assets are treated as indefinite-lived intangible assets and accounted for at historical cost less impairment. Exceptions to the current legacy accounting model are entities that are within the scope of the investment-company guidance or certain types of broker-dealers. The current cost-less impairment accounting model reflects decreases but not increases in the value of crypto assets in the financial statements until those assets are sold. Therefore, it does not provide decision-useful information reflective of the underlying economics of crypto asset holdings. The new ASU, however, would address those concerns.

The new ASU would apply to crypto assets that:

• Meet the definition of intangible asset as defined in the FASB codification;
• Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets;
• Are created or reside on a distributed ledger based on blockchain technology;
• Are secured through cryptography;
• Are fungible; and,
• Are not created or issued by the reporting entity or its related parties.

The following are additional presentational requirements under this ASU:

• Balance Sheet: Crypto assets will be presented separately from other intangible assets.
• Income Statement: Changes from the subsequent remeasurement of crypto assets should be presented separately from changes in the carrying value of other intangible assets.
• Income Statement: Gains and losses from the remeasurement of crypto assets should be classified within the income statement as operating or nonoperating based on the facts and circumstances.
• Statement of Cash Flows: Cash derived from crypto assets that are received as noncash considerations for transactions conducted in the ordinary course of business (or received as a contribution) and converted nearly immediately into cash should be presented in the operating activities section.

This new ASU will also introduce new disclosure requirements, including:

• Name, cost basis, fair value, and number of units held for each significant crypto asset.
• Aggregate cost basis and fair value of crypto assets that are not individually significant.
• Fair value, nature, remaining duration of restrictions, and circumstances that might cause restrictions to lapse for crypto assets that are subject to contractual sale restrictions.
• Reconciliation, in the aggregate, of activity from the opening to the closing balances of crypto assets, as well as separate disclosures of additions, dispositions, and gains and losses determined on a crypto asset by crypto asset basis for the period.
• At annual reporting periods, a description of the nature of activities that result in additions and dispositions and total amount of cumulative realized gains and cumulative realized losses from dispositions that occurred during the period.
• Method used by the reporting entity to determine the cost basis in calculating gains and losses, such as specific identification, FIFO, or average cost.

These amendments are effective for all entities for the fiscal year beginning after December 15, 2024 including interim periods within those fiscal years. Early adoption is permitted. This ASU requires a cumulative-effect adjustment to the opening balance of retained earnings or other appropriate component of equity or net assets, as of the beginning of the annual reporting period in which an entity adopts this ASU. This adjustment is calculated as the difference between the carrying amount of crypto assets as of the end of the prior annual reporting period and the fair value of those crypto assets as of the beginning of the annual reporting period in which the entity first applies the guidance of ASU 2023-08.   

If you have questions, please contact Julius Wakaba, CPA, Manager at 774.512.4184 or jwakaba@aafcpa.com, Courtney McFarland, CPA, MSA, 340B Apexus Certified Expert™, Partner at 774.512.4051 or cmcfarland@aafcpa.com, Olga Yasinnik, CPA, MBA, Director, Assurance at 774.512.4082 or oyasinnik@aafcpa.com—or your AAFCPAs Partner.