Accounting standard update on accounting and disclosure of crypto assets

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets.

The ASU is intended to provide financial statement users with more decision-useful information by requiring certain crypto assets to be measured at fair value at each reporting period with changes in fair value recognized in net income resulting in a better reflection of their economics. The amendments also require disclosures about significant holdings, restrictions, and changes in those holdings.

The amended guidance applies to all entities holding crypto assets within the scope of the ASU, including public business entities, private companies, not-for-profit entities (NFP), and employee benefit plans.

Key provisions

Under current generally accepted accounting principles (GAAP), crypto assets are generally accounted for as indefinite-lived intangible assets in accordance with Subtopic 350-30, Intangibles — Goodwill and Other — General Intangibles Other Than Goodwill. This accounting results in the initial measurement of crypto assets at cost and subsequent impairment evaluation — referred to as the cost-less-impairment model.

Under this model, assets are required to be tested for impairment on an annual basis or when circumstances indicate the carrying amount of the asset may not be recoverable. When an identical digital asset is bought and sold at a price below the entity’s current carrying value, this will often serve as an indicator that impairment is more likely than not. If there is determined to be impairment, the carrying amount of the crypto assets is reduced to fair value and any subsequent increases are prohibited.

During the FASB’s 2021 agenda consultation process, stakeholders expressed concern that the cost-less-impairment accounting model doesn’t reflect the underlying economics or provide the users of the financial statements with decision-useful information as the subsequent increases in the value of crypto assets aren’t reflected in the financial statements. Feedback received also indicated that most stakeholders favored a fair value measurement model, which would align the accounting for crypto assets with the accounting for equity investments.