Stack of papers

Blockchain advocates ask FASB to clarify classification of cryptoassets in financial statements

The Wall Street Blockchain Alliance and two academics have asked the Financial Accounting Standards Board (FASB) to clarify the classification of cryptoassets and virtual currencies in financial statements, stating lack of guidance has created a level of uncertainty that’s impacting to financial statements.

“The size and scope of the virtual currency and cryptoasset markets necessitate more clarification and formal guidance for practitioners and firms seeking to provide much needed services to clients,” WSBA Chairman, Ron Quaranta, Dr. Sean Stein Smith of the City University of New York’s Lehman College, and Dr. Brian Mittendorf of Ohio State University’s Fisher College of Business, told the FASB in an Oct. 16, 2019, letter.

With progress being made from a taxation angle via updated Internal Revenue Service (IRS) guidance, as well as continued expansion of the size and scope of institutional market participating, there is a “quantifiable and demonstrable need for the FASB to weigh in and add this to the formal agenda,” the letter states.

The IRS on Oct. 9 issued two new pieces of guidance for taxpayers who engage in transactions involving virtual currency, part of a wider effort to assist taxpayers and to enforce the tax laws in a rapidly changing area.

Wrong Consensus Emerging Among Entities

The letter cites the recent $4.4 billion restatement by the Silicon Valley Community Foundation (SVCF) for its retained cryptoassets as exemplifying the uncertainty surrounding the accounting treatment.

SVCF in 2018 conducted an in-depth analysis of the nature of the evolving cryptocurrency asset class, according to a notice on its website about its 2018 financial statements. “While no authoritative guidance has been issued by the FASB, a growing body of analysis and literature has led entities to conclude that this asset should be classified as an “indefinite lived intangible asset,” SVCF said. The organization said it retrospectively applied this accounting policy to its previously issued consolidated financial statements for 2017. “When unrealized gains were removed, the effect was an approximately $4.4 billion decrease in our undesignated net assets for 2017, as mentioned above,” it said.

Blockchain advocates said lack of FASB rules enabled SVCF to form a consensus that virtual currency classification as an indefinite lived intangible asset is the most appropriate option, which “seems to many of us to be like trying to fit the proverbial square peg into a round hole.”

They stated the classification consensus emerged, in part, because there has been no definitive guidance from the FASB, nor has the board provided any comments on the issue.

“Indefinite lived intangible assets are able to be tested for impairment if conditions arise but are unable to be marked to market,” the letter states. “Given the continued volatility of the virtual currency or cryptoasset markets, amongst other issues, this does not seem to [be] an appropriate classification for these nascent asset classes.”

For more information on this topic, or to learn how Baker Tilly accounting and assurance specialists can help, contact our team.

We have partnered with Thomson Reuters to issue our monthly Accounting insights. Please feel free to contact Baker Tilly if you have any questions related to these articles or Baker Tilly's Accounting and Assurance Services. ©2019 Thomson Reuters/Tax & Accounting. All Rights Reserved.

Next up

R&D credit opportunities for life sciences organizations