6.3 Disclosures About Crypto Assets Within the Scope of ASU 2023-08

ASC 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 value
Number of units held.

An entity shall disclose the aggregated cost bases and fair values of the crypto asset holdings that are not individually significant.

50-2 At annual reporting periods, an entity shall disclose both of the following:

The method used to determine its cost basis for computing gains and losses (for example, first-in, first-out; specific identification; average cost; or other method used)
If not presented separately, the line item in which gains and losses are reported in the income statement.

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 remeasurement 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 remeasurement as included in net income for the period shall be included in the losses line.

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 cumulative realized gains and cumulative realized losses from dispositions that occurred during the period.

50-5 An entity that receives crypto assets as noncash consideration in the ordinary course of business (or as a contribution, in the case of a not-for-profit entity) that are converted nearly immediately into cash need not include that activity in the disclosures required by paragraphs 350-60-50-3 through 50-4.

50-6 For interim and annual reporting periods, an entity shall disclose the following information for crypto assets subject to contractual sale restrictions at the balance sheet date:

The fair value of the crypto assets that are subject to contractual sale restrictions
The nature and remaining duration of the restriction(s)
Circumstances that could cause the restriction(s) to lapse.

50-7 In providing the required disclosures in paragraph 350-60-50-6, an entity with multiple crypto assets subject to contractual sale restrictions shall consider all of the following:

The level of detail necessary to satisfy the required disclosures
How much emphasis to place on each of the required disclosures
How much aggregation or disaggregation to undertake
Whether users of financial statements need additional information to evaluate the quantitative information disclosed.

In the summary section of ASU 2023-08, the Board acknowledged that the historical-cost-less-impairment accounting model does not provide users with decision-useful information and stated that investors “requested additional disclosures about the types of crypto assets held by entities and the changes in those holdings.” The ASU’s Background Information and Basis for Conclusions goes on to state that “[a] key objective for this project, based on stakeholders’ feedback on the ITC and outreach, is to improve the information about crypto assets provided to investors in the financial statements.” Accordingly, disclosures became a primary focus of the ASU.

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While the additional disclosures required by ASC 350-60 are not required for ASC 350-30 crypto assets (see discussion in Section 6.1), entities may want to consider whether any of these disclosures would help financial statement users better understand such assets. Since the subsequent measurement model in ASC 350-60 differs from that in ASC 350-30, entities should be careful not to provide disclosures that could be misleading or not representative of the measurement basis used to account for the crypto assets (i.e., ASC 350-30). For example, an ASC 350-30 crypto asset cannot be subsequently measured at fair value; therefore, it could be misleading to provide fair value information as is required for in-scope crypto assets.

Like other assets measured at fair value, in-scope crypto assets are subject to the disclosure requirements in ASC 820. Further, the amendments in ASU 2023-08 require entities to provide certain additional disclosures about in-scope crypto asset holdings for annual and interim periods. Specifically, entities should disclose:

For annual and interim periods, the “name, cost basis, fair value, and number of units for each significant crypto asset holding.” Entities must also disclose the aggregate cost basis and fair value of in-scope crypto assets determined not to be individually significant. See Section 6.3.1.
For annual periods, (1) the method the entity used to determine the cost basis of the in-scope crypto assets disposed of when calculating gains and losses and (2) the income statement line item in which gains and losses are included (if they are not presented separately). See Section 6.3.2.
An annual reconciliation of aggregate in-scope crypto asset holdings, from the opening to the closing balance, that addresses (1) additions, (2) dispositions, and (3) gains and losses included in net income for that respective period. Assets with net gains or net losses within the period should be presented in the applicable line of the reconciliation (e.g., an in-scope crypto asset with transactions resulting in both gains and losses during the period, but that results in a net gain overall, should be presented within net gains in that period). An entity must also disclose the following information about the reconciliation: (1) 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) as well as (2) the total amount of cumulative realized gains and losses from dispositions during the period. See Sections 6.3.3 and 6.3.4.
For in-scope crypto assets subject to contractual sale restrictions as of the balance sheet date, entities are required to disclose the (1) fair value of those assets, (2) “nature and remaining duration of the restriction(s),” and (3) circumstances in which the restrictions could lapse. See Sections 4.3.4 and 6.3.5.

Note that in the year of adoption, an entity should provide both annual and interim disclosures in the first interim period after the adoption of ASU 2023-08 and in each subsequent interim period. See Section 7.2.3 for more information.

6.3.1 In-Scope Crypto Assets Held

ASC 350-60-50-1 (added by ASU 2023-08) requires an entity to disclose certain information for each significant in-scope crypto asset holding, including the name, cost basis, fair value, and number of units. As discussed in Section 4.2, an entity is required to subsequently measure in-scope crypto assets within the scope of ASC 350-60 at fair value, with changes in fair value recorded in net income in each reporting period.

The ASU does not define the term “significance” with respect to in-scope crypto asset holdings. However, the ASU states that the assets’ fair value is used to determine their significance and that enhanced disclosures should “provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings.” Therefore, significance should be based on management’s judgment. Considerations may include:

The nature of the in-scope crypto assets.
The concept of “significance” in other GAAP.
Materiality.

In addition, while the ASU clarifies that significant holdings are determined on the basis of fair value, there is no bright-line threshold for significance (such as a requirement to disclose the top 5 or 10 in-scope crypto asset holdings by fair value). Paragraph BC61 of the ASU notes that “[u]sing the term significant holdings is consistent with other GAAP requirements and is not further defined in the [ASU’s] amendments.”

Entities should use judgment in determining which holdings are significant. The purpose of this determination, which may include consideration of both qualitative and quantitative factors, should be to increase transparency so that investors can understand present risks. Entities should apply a consistent method over time to identify which holdings are significant and may consider disclosing their policy for such identification.

6.3.2 Cost Basis Method

Under ASU 2023-08, an entity must disclose the method used to determine its cost basis for computing gains and losses. The guidance does not specify a single required method. Therefore, there are multiple methods (e.g., first in, first out [FIFO]; specific identification; average cost) that a reporting entity could use to determine the cost basis of in-scope crypto assets.

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Before adoption of the ASU, impairment testing under the cost-less-impairment model was performed at the lowest level of identifiable cash flows, resulting in operational challenges for entities using the average cost method to track the cost basis of crypto assets. Therefore, after adopting ASU 2023-08, more entities might use the average cost method for in-scope crypto assets.

ASU 2023-08 does not specify what cost basis to use for the disclosures during the transition period. In general, because the cumulative-effect adjustment to retained earnings will be based on the carrying amount at the end of the prior annual reporting period, an entity may use the cost basis of the assets as of the end of the prior year, including any impairments, for the disclosure. However, an entity may instead elect to use an alternative cost basis. The entity’s disclosures should include the basis used as of the adoption date. For further discussion of the effective date and transition guidance, see Chapter 7.

6.3.3 Gains and Losses in the In-Scope Crypto Asset Reconciliation

ASU 2023-08 requires a reconciliation, in the aggregate, of activity from the opening balance to the closing balance of in-scope crypto assets. In providing such a reconciliation, an entity should disclose, on a crypto-asset-by-crypto-asset basis, the gains and losses from remeasurement that are included in net income.

Note that in the year of adoption, an entity should provide both annual and interim disclosures in the first interim period after the adoption of ASU 2023-08 and in each subsequent quarter. See Section 7.2.3 for more information about disclosures related to the reconciliation in interim periods in the year of adoption.

Example 6-1

Assume that an entity purchases units of Crypto Asset A during an annual period. After the purchase, the price of A decreases, resulting in a remeasurement loss of $100. The entity subsequently sells all its units of A and then purchases additional units of A later in the same period. After that purchase, there is a price increase that results in a remeasurement gain of $60, which offsets only a portion of the previously recognized $100 remeasurement loss. In this case, the entity would include the net remeasurement loss of $40 related to A in the line item for losses in that period’s reconciliation, along with the net losses from other in-scope crypto asset holdings that had net losses from remeasurement.

6.3.4 Total Amount of Cumulative Realized Gains and Losses

ASC 350-60-50-4(b) (added by ASU 2023-08) indicates that entities are required to separately disclose the “[t]otal amount of cumulative realized gains and cumulative realized losses from dispositions that occurred during the period” covered by the reconciliation. Because the realized gain or loss represents the difference between the original cost basis of the asset sold and the disposal price, the cumulative realized gains and cumulative realized losses may not equal the remeasurement gains and remeasurement losses separately presented within the reconciliation (e.g., if an in-scope crypto asset purchased in a prior period had unrealized gains or losses in that prior period but was sold in the current period).

Further, while entities are permitted to provide disaggregated realized gains and losses for individual in-scope crypto assets, ASU 2023-08 does not require that level of disclosure. We believe that if a more disaggregated disclosure is provided, the entity should ensure that the total amount of cumulative realized gains and cumulative realized losses is included in the disclosure.

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The FASB had received feedback that the historical cost-less-impairment accounting model was costly for entities to apply because they had to continuously track cost basis for impairment testing purposes. While ASU 2023-08 alleviates some of the cost, it does not remove it completely since entities will still need to track cost basis to comply with the disclosure requirements for realized gains and losses.

Example 6-2

Assume that an entity’s dispositions of in-scope crypto assets in its reconciliation for an annual period consists of the following:

Sales of Crypto Asset A that resulted in a realized gain of $200 and a realized loss of $100.
Sales of Crypto Asset B that resulted in a realized gain of $50 and a realized loss of $100.
Sales of Crypto Asset C that resulted in a realized gain of $40 and a realized loss of $20.

Unlike remeasurement gains and losses (see Example 6-1), cumulative realized gains and cumulative realized losses are presented as the total realized gains for all in-scope crypto assets and the total realized losses for all crypto assets. Therefore, the entity would disclose cumulative realized gains of $290 ($200 from A, $50 from B, and $40 from C) and cumulative realized losses of $220 ($100 from A, $100 from B, and $20 from C).

Note that if entities receive in-scope crypto assets as noncash consideration in the ordinary course of business and convert those in-scope crypto assets nearly immediately into cash, they do not need to include that activity in the above disclosure. See Section 6.2.3 for further considerations related to crypto assets that are converted to cash nearly immediately.

6.3.5 Disclosure Examples

Below is an example illustrating the annual disclosure requirements in ASU 2023-08. The interim disclosure requirements may not necessarily be the same as the annual requirements. An entity should consider the level of detail and aggregation necessary to provide appropriate information to its financial statement users; note, however, that there may be other ways to satisfy the ASU’s disclosure objectives. Disclosures about crypto assets that are not within the scope of the ASU should be separate from those about in-scope crypto assets, given that a different measurement basis and model is used for each.

Disclosure Example

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies

Crypto Assets Held at Fair Value

As of December 31, 20X4, the Company held $210.0 million of crypto assets at fair value. We reflect crypto assets held at fair value on the consolidated balance sheets within the crypto assets held line item. The activity from remeasurement of crypto assets at fair value is reflected in the consolidated statements of operations within Other income (expense), net. Crypto assets that are received as noncash consideration in our revenue arrangements and sold for cash nearly immediately are presented as cash flows from operating activities, while other sales and purchases are reflected as cash flows from investing activities in the consolidated statements of cash flows. Refer to Note X, Crypto Assets Held, and Note Y, Fair Value Measurements, for additional information.

For in-scope crypto assets subject to contractual sale restrictions as of the balance sheet date, entities are required to disclose:

The fair value of those assets.
The nature and remaining duration of the restrictions.
The circumstances in which the restrictions could lapse.

See Section 4.3.4 for more information about restrictions on transferability, sale, or use.

Disclosure Example (continued)

In June 20X4, the Company invested in an early-stage digital asset protocol and received certain tokens as part of its investment. Under the requirements of the investment, the tokens are subject to a contractual sale restriction that is time-based and lasts until the second anniversary of the investment date. The restriction does not contain any other obligations. Following the expiration of this restriction, the Company will be subject to certain, more limited transfer restrictions depending on the market capitalization of the tokens. The fair value of these tokens was $20 million as of December 31, 20X4.

Note X, Crypto Assets Held

The following table sets forth the units held, cost basis, and fair value of crypto assets held, as shown on the consolidated balance sheet as of December 31, 20X4:

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For annual and interim periods, ASU 2023-08 requires entities to disclose the “name, cost basis, fair value, and number of units for each significant crypto asset holding.” The aggregate cost basis and fair value of in-scope crypto assets that are determined not to be individually significant must also be disclosed. In addition, entities are permitted, but not required, to disclose narratively the number of insignificant in-scope crypto assets, aggregated into one line item within the footnote.

Disclosure Example (continued)

The following table represents a reconciliation of the fair values of the Company’s crypto assets held for the year ended December 31, 20X4:

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As shown above, an entity is required to disclose an annual reconciliation of aggregate in-scope crypto asset holdings, from the opening balance to the closing balance, that addresses (1) additions (including the nature of the activities resulting in those additions), (2) dispositions (including the nature of the activities as well as the total amount of cumulative realized gains and losses from dispositions during the period), (3) gains included in net income for the period, and (4) losses included in net income for the period, each on a crypto-asset-by-crypto-asset basis. Assets with net remeasurement gains or net remeasurement losses within the period should be presented in the applicable line of the reconciliation (e.g., an in-scope crypto asset with transactions resulting in both remeasurement gains and losses during the period, but that results in a net remeasurement gain overall, should be presented within net gains in that period).

Disclosure Example (continued)

The Company uses a FIFO methodology1 to assign costs to crypto assets for purposes of the crypto assets held and realized gains and losses disclosures above.

Disclosure Considerations in Transition2

Recently Adopted Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-08, Intangibles — Goodwill and Other — Crypto Assets (Subtopic 350-60) (ASU 2023-08), which provides an update to existing crypto asset guidance and requires an entity to measure certain crypto assets at fair value. In addition, this guidance requires additional disclosures related to crypto assets once it is adopted. As of January 1, 20X2, the Company has adopted ASU 2023-08.

Disclosure Example (continued)

The Company reflects crypto assets held at fair value on the consolidated balance sheets and consolidated statements of cash flows, the activity from remeasurement of crypto assets at fair value on the consolidated statements of operations, and the required expanded disclosures in Note X, Crypto Assets Held. The adoption of ASU 2023-08 resulted in a cumulative-effect adjustment to increase the opening balance of retained earnings of $10.0 million as of January 1, 20X2.

Example Reconciliation Disclosure for Interim Reporting Period in the Year of Adoption

Below is an example of how an entity may present the reconciliation for the second quarter ending June 30, 20X2.

The following table represents a reconciliation of the fair values of the Company’s crypto assets held for the three- and six-month periods ending June 30, 20X2:

Additions are the result of purchases and receipts from customers as payments for goods and services, while dispositions are the result of sales and payments for services. During the three months ended June 30, 20X2, the Company had crypto asset dispositions of $2.0 million, realized gains of $1.0 million, and realized losses of $0.5 million. During the six months ended June 30, 20X2, the Company had crypto asset dispositions of $10.0 million, realized gains of $1.5 million, and realized losses of $0.8 million.

Footnotes

Note that for illustrative purposes only, the FIFO method is used as the cost method in this example.

While not specifically required by ASU 2023-08, this sample language may be provided in an entity’s financial statements in accordance with ASC 250-10-50. Before adoption of the ASU, an entity should consider the guidance in SAB Topic 11.M (SAB 74).

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.