Now or later: When should your company implement the new crypto reporting guidance?

The Financial Accounting Standards Board (FASB) made favorable changes to the accounting rules for crypto assets in December 2023. The updated guidance benefits reporting entities and external stakeholders alike. It’s effective for fiscal years beginning after December 15, 2024, including interim periods within those years. Here’s what you should know — and why many companies are choosing to implement the changes before they’re required to do so.

Need for change

Under the guidance in effect for calendar year 2024 and earlier, crypto assets are accounted for as intangible assets and reported on the balance sheet at historical cost. Those assets are deemed to be impaired when the price drastically drops. But, if the price goes back up, that impairment can never be recovered. Some companies that invest in cryptocurrencies, such as Bitcoin and Ethereum, have complained that this treatment doesn’t accurately reflect the underlying economics for digital assets.

In response to these concerns, the FASB issued ASU No. 2023-08, Intangibles — Goodwill and Other — Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, on December 13, 2023. The landmark guidance is the first direct accounting standard on crypto assets. It requires crypto assets to be measured at “fair value.” This represents the price that would be received if the company were to sell the crypto asset in an orderly transaction to a willing, knowledgeable buyer. Changes in value are recognized in each reporting period as gains or losses in comprehensive income.

Under the updated guidance, companies must present crypto assets separately from other intangible assets on the balance sheet because they have different measurement requirements. This will result in a prominent display of crypto assets, providing investors with clear and transparent information about the fair value of those assets within the financial statements. In addition, businesses must provide detailed disclosures to help financial statement users understand crypto asset holdings, contractual sale restrictions and changes during the reporting period.

Scope

Under ASU 2023-08, the fair-value measurement standard applies to crypto assets that meet the following six conditions:

1. They’re fungible. This term refers to an item that can be freely traded or replaced with something of equal value. This condition is specifically designed to exclude non-fungible tokens (NFTs) from the scope of the guidance.
2. They’re deemed to be intangible, which excludes securities and fiat currencies.
3. They don’t provide the asset holder with enforceable rights to, or claims on, underlying goods, services or other assets (such as with a contract).
4. They’re created or reside on a distributed ledger based on blockchain technology (thereby excluding software, media and data).
5. They’re secured through cryptography.
6. They aren’t created or issued by the reporting entity or its related parties.

The updated guidance applies to all public and private entities with the same effective dates. In other words, no practical expedients or delayed implementation deadlines have been given to privately held businesses or nonprofits.

Early adoption

When reporting crypto assets, it’s typically easier and more cost-effective for companies to measure their fair value than to apply the existing cost-less-impairment model. Plus, the separate balance sheet presentation and enhanced disclosures for crypto assets give stakeholders more detailed, transparent information, allowing them to make better-informed financial decisions.

While ASU 2023-08 doesn’t go into effect for calendar-year entities until 2025, the benefits have prompted many cryptocurrency holders to implement the changes early. If this standard applies to your company, contact us for implementation guidance, including whether early adoption makes sense for your situation.

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