The Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standards Update (ASU), Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which is intended to improve the accounting for and disclosure of certain crypto assets.
Under current accounting, except as required by certain specialized industry guidance, crypto assets are treated as indefinite-lived intangible assets, reported at cost less any impairment loss. Stakeholders have informed the FASB that this accounting model does not provide decision-useful information. More specifically, current generally accepted accounting principles may not allow an entity to reflect its true financial position or financial performance because it only captures decreases and not increases in the value of crypto assets until they are sold. In addition, certain financial statement users have requested disclosure requirements about the types of crypto assets that an entity holds and changes in those holdings.
The proposed ASU would require an entity to subsequently measure certain crypto assets at fair value with changes in fair value recognized in net income. Measuring crypto assets at fair value would align the accounting required for all holders of crypto assets with certain specialized industry guidance (e.g., investment company accounting).
An entity would be required to present crypto assets measured at fair value separately from other intangible assets in the balance sheet. Likewise, an entity would present changes in the fair value of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement.
The proposed ASU also would require an entity to recognize transaction costs to acquire a crypto asset as an expense as incurred unless applicable specialized industry guidance requires capitalization of those costs.
Although the proposed ASU would not affect the presentation requirements for the statement of cash flows, if an entity receives crypto assets as noncash consideration in the ordinary course of business (e.g., in exchange for the transfer of goods or services to a customer) and it converts those assets nearly immediately into cash, it would classify those cash receipts as cash flows from operating activities.
In addition, the proposed ASU would require enhanced disclosures for both annual and interim reporting, which are meant to provide financial statement users with relevant information to analyze significant crypto asset holdings. The annual disclosures would include a detailed rollforward of an entity’s crypto asset holdings.
The proposed ASU would require a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period in which an entity adopts the proposed ASU. Early adoption would be permitted in any interim or annual reporting period. The FASB will determine the effective date for the proposed amendments after it considers its stakeholders’ feedback.
Stakeholders are encouraged to review and provide comment on the proposed ASU by June 6, 2023.
