The Financial Accounting Standards Board (FASB) will require entities to use fair value accounting for crypto assets and provide additional information about their crypto holdings beginning in 2025. Under the new Accounting Standards Update (ASU) 23-08, entities must value crypto assets for each reporting period and recognize changes in net income. The new standards will also require annual and interim reporting on significant holdings, contractual sale restrictions, and changes during the reporting period.
The use of fair value accounting is intended to better reflect the value of crypto assets, help companies prepare financial statements, and provide investors with improved transparency. The additional disclosures are intended to provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings.
Previously, crypto assets were accounted for as indefinite-lived intangible assets, which required them to be recorded at cost and then tested for impairment. The unique aspect of crypto assets, however, required different treatment. FASB has had crypto accounting standard on its technical agenda since May 2022, and the updated standards provide long sought for guidance in this area.
Applicable Crypto Assets
Fair value measurement applies to crypto assets with the following criteria:
- Meet the definition of “intangible asset” as defined in the FASB Accounting Standards 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 or “blockchain”;
- Are secured through cryptography;
- Are fungible; and
- Are not created or issued by the reporting entity or its related parties.
Crypto assets measured at fair value must be presented separately from other intangible assets in the balance sheet. Changes from the remeasurement of crypto assets must also be presented separately from other intangible assets in the income statement.
The new standards also require the specific presentation of cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business and are converted nearly immediately into cash.
For annual and interim reporting periods, the following information is required:
- The name, cost basis, fair value, and number of units for each significant crypto asset holding and the aggregate fair values and cost bases of the crypto asset holdings that are not individually significant
- For crypto assets that are subject to contractual sale restrictions, the fair value of those crypto assets, the nature and remaining duration of the restriction(s), and the circumstances that could cause the restriction(s) to lapse.
For annual reporting periods, the following information is required:
- A roll-forward, in the aggregate, of activity in the reporting period for crypto asset holdings, including additions (with a description of the activities that resulted in the additions), dispositions, gains, and losses
- For any dispositions of crypto assets in the reporting period, the difference between the disposal price and the cost basis and a description of the activities that resulted in the dispositions
- If gains and losses are not presented separately, the income statement line item in which those gains and losses are recognized
- The method for determining the cost basis of crypto assets.
The new standards take effect for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. Amendments adopted in an interim period must be adopted as of the beginning of the fiscal year that includes that interim period.
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