Mandatory deemed repatriation under Sec. 965

When the FASB put out an agenda request in the summer, hundreds have asked the accounting standard-setter to tackle accounting rules for digital assets.

It is an issue that many have brought up even before the board solicited standard-setting projects that it should formally undertake.

It is unclear whether the board will for sure put it on its standard-setting agenda, but SEC officials assured that both the agency and the FASB are closely monitoring and analyzing the issue.

The SEC Office of the Chief Accountant (OCA), which oversees the board, actively engages with the FASB and its staff, including on its technical agenda and its post-implementation review (PIR) of standards.

When there are gaps in existing accounting guidance or areas where current rules can be improved, OCA shares its perspective with the FASB.

“We certainly understand the interest in this topic, recognize that it is a growing area,” John Vanosdall, a deputy chief accountant in OCA, said at the annual Conference on Banks and Savings Institutions hosted by the AICPA and CIMA on Sept. 20, 2021.

In terms of the current lack of movement on accounting rulemaking, he noted that there are many types of digital assets that are on the blockchain: crypto currencies, crypto commodities, utility tokens, security tokens, and hybrid tokens. Moreover, there are other crypto assets, including smart contracts, initial coin offerings, and non-fungible tokens. The list is expected to grow and evolve.

“The accounting for digital assets begins with a question of ‘what is it?’” Vanosdall said. “So, you may have seen that the commission has said that some but not all of them are securities.”

The SEC has said that if a digital asset functions like a security, then that would be regulated under the federal securities laws. And a security includes an investment contract. The commission in April 2019 provided staff interpretive guidance to help businesses figure out whether their cryptos are securities or not. Many cryptocurrencies are used as medium of exchange, but others function like a security.

“Under U.S. GAAP, those that are not securities, or otherwise subject to specialized accounting guidance, generally are accounted for as intangible assets,” Vanosdall said.

“However, this is after ruling out that the particular digital asset does not meet the definition of another type of assets, such as cash or cash equivalent, financial instrument, or inventory,” he explained. “Therefore, when you think about standard-setting, and what standard-setting, if any, is needed, I believe scoping is going to be critical in terms of producing high quality standards.”

The request for accounting rules comes as digital assets are increasingly becoming an important component of investments.

Vanosdall highlighted a March 2021 survey by a digital investment group in New York. It found that 92% of the respondents expected their financial advisers to be able to give advice on Bitcoin.

Another study conducted by cryptocurrency index provider Bitwise in 2019 found that 76% of financial advisers have gotten questions from their clients about digital assets.

“It’s an area with a lot of different players and interests in the accounting and financial reporting,” he said. Thus, “it will be imperative to fully understand” the entire digital ecosystem, including what different stakeholders want.

He added that it is important to make sure that the information provided to investors is useful.

“While there can be a debate about whether there should be changes to accounting standards related to digital assets… I wanted to highlight there is an existing GAAP framework in place that’s robust and provides a basis to account for these assets,” he said.

Contact our team for more information on this topic, or to learn more about Baker Tilly's Accounting and Assurance Services. We have partnered with Thomson Reuters to issue our monthly SEC Accounting Update. © 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

California Pacific Coast Highway
Next up

California regional M&A update: H1 2021