The Financial Accounting Standards Board (FASB) announced that it would issue final rules after gathering public comments received in response to an exposure draft of proposed rules for crypto assets. The exposure draft, issued March 23, 2023, resolves uncertainties and formalizes Generally Accepted Accounting Principles for bitcoin and other crypto assets for issuers of GAAP-basis financial statements.
Prior to the release of the proposed rules, crypto assets were commonly treated as “indefinite life intangible assets,” and recorded at historical cost. While crypto assets were not amortized like other intangible assets, they would be subject to periodic impairment testing to consider whether their values had declined. This treatment was problematic in that it obfuscated both the most common use cases for crypto assets as a medium of exchange and the proper valuation of crypto assets as near-cash alternatives. Most crypto assets are continuously and actively traded on public markets and have values that are readily ascertainable.
What Are Crypto Assets
According to FASB reporting guidance, crypto assets are those assets that meet all of the following criteria.
- Meet the definition of intangible asset as defined in the Accounting Standards Codification Master Glossary
- 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
- Are not created or issued by the reporting entity or its related parties.
The list is exclusive, meaning that assets that fail to meet one or more of these criteria must be reported using other rules.
Valuation
Crypto assets are to be carried at fair value, with changes recognized in net income each reporting period.
Disclosure
350-60-50-1 At interim and annual reporting periods, an entity shall disclose the following for each significant (as determined by the fair value) crypto asset holding:
- Name of the crypto asset
- Cost basis
- Fair values and number of units held
350-60-50-2 At annual reporting periods, an entity shall disclose the method used to determine its cost basis for computing gains and losses (for example, first-in, first-out; specific identification; or other method used).
350-60-50-3 At annual reporting periods, an entity shall provide a reconciliation, in the aggregate, of activity from the opening to the closing balances of crypto assets, separately disclosing changes during the period attributable to the following:
- Additions.
- Dispositions.
- Gains included in net income for the period, determined on a crypto-asset-by-crypto-asset basis. Each crypto asset holding that has a net gain from the change in the fair value as included in net income for the period shall be included in the gains line.
- Losses included in net income for the period, determined on a crypto-asset-by-crypto-asset basis. Each crypto asset holding that has a net loss from the change in the fair value as included in net income for the period shall be included in the losses line.
350-60-50-4 An entity shall disclose the following information about the reconciliation in paragraph 350-60-50-3:
- A description of the nature of activities that result in additions (for example, purchases, receipts from customers, or mining activities) and dispositions (for example, sales or use as payment for services)
- Total amount of realized gains and losses from dispositions
- If not presented separately, the line item in which gains and losses are reported in the income statement.
Additionally, crypto assets received as non-cash consideration in the ordinary course of business and converted “nearly immediately” to cash must be included in the statement of cashflows as part of operating activities.
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