FASB Directs Staff to Draft Final Standard on Crypto Assets
Overview
At its September 6, 2023, meeting, the FASB discussed feedback on its
proposed ASU1 on the accounting for and disclosure of certain crypto assets. On the
basis of comments received on the proposal, the Board directed its staff to
draft a final standard. Under the new guidance, an entity would be required to
subsequently measure certain crypto assets at fair value, with changes in fair
value included in net income in each reporting period.
Background
Currently, an entity must account for crypto assets as
indefinite-lived intangible assets in accordance with ASC 3502 (i.e., the assets must be measured at historical cost less impairment)
unless the entity is within the scope of the investment-company guidance in ASC
9463 or is a certain type of broker-dealer. Stakeholders have raised concerns
that, among other factors, this traditional intangible asset model (1) does not
faithfully represent the economics of crypto assets and (2) makes the
recognition of impairments needlessly complex by requiring entities to use a
crypto asset’s lowest observable fair value within a reporting period.
Accordingly, the FASB proposed amendments that would better reflect the
economics of crypto assets held by entities as well as reduce the complexity and
cost of complying with a historical-cost-less-impairment model under the
existing requirements in ASC 350.
Key Tentative Board Decisions
At the meeting, the FASB reaffirmed a majority of the proposed
ASU’s requirements. Key tentative decisions are highlighted below.
Scope
The guidance in the proposed ASU applies to crypto assets
that, among other things,4 reside on “a distributed ledger based on blockchain technology.” In
response to feedback from constituents, the Board decided to extend the
scope of that guidance to add crypto assets that reside on a distributed
ledger that is based on technology that is similar to a blockchain.
Although some stakeholders suggested that the guidance should apply to
certain assets that provide rights to other crypto assets (e.g., “wrapped
tokens”), the Board ultimately decided not to include such assets within the
scope of the final standard.
Measurement
The Board reaffirmed the proposed ASU’s requirement that an
entity must subsequently measure crypto assets that are within the scope of
the guidance (as amended) at fair value, with changes in fair value included
in net income for each reporting period.
Presentation
The Board reaffirmed its proposed guidance on the
presentation of crypto assets. Accordingly, under the final standard, an
entity would be required to:
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Present on the balance sheet the aggregate amount of “crypto assets measured at fair value separately from other intangible assets” that are not measured at fair value.
-
Present in net income changes in the fair value of crypto assets separately from changes in the carrying amount (e.g., impairments and amortization) of other intangible assets, including other crypto assets that are not measured at fair value.
-
Classify as cash flows from operating activities those cash receipts from the nearly immediate sale of crypto assets that were “received as noncash consideration in the ordinary course of business (for example, in exchange for the transfer of goods and services to a customer).”
Disclosures
The Board reaffirmed its proposed guidance on annual and
interim disclosures related to significant holdings of crypto assets,
restrictions on crypto assets, and an annual reconciliation of activities
for the entity’s crypto holdings. However, on the basis of feedback from
stakeholders, the Board decided to exclude from the annual reconciliation
“activity related to crypto assets received as noncash consideration in the
ordinary course of business and converted nearly immediately into cash.” An
entity that does not include this activity in its annual reconciliation
would be required under the final guidance to separately disclose where it
has presented such activity in its income statement.
Effective Date and Transition
Effective Date
The Board decided that the final standard would be effective for all entities
in fiscal years beginning after December 15, 2024, including interim periods
within those years. Early adoption would be permitted.
Transition
When adopting the final standard, an entity would be required to record a
cumulative-effect adjustment to retained earnings (or other appropriate
components of equity or net assets) as of the beginning of the annual period
of adoption. Retrospective restatement would not be required for prior
periods.
Next Steps
The Board directed the staff to move forward with drafting a final ASU for
approval by ballot. Issuance of a final ASU is expected during the fourth
quarter of 2023.
Contacts
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|
Stephen McKinney
Audit &
Assurance Managing Director
Deloitte &
Touche LLP
+1 203 761
3579
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Bob Bell
Audit &
Assurance Senior Manager
Deloitte &
Touche LLP
+1 312 486
0031
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Footnotes
1
FASB Proposed Accounting Standards Update (ASU),
Intangibles — Goodwill and Other — Crypto Assets (Subtopic
350-60).
2
FASB Accounting Standards Codification (ASC) Topic 350,
Intangibles — Goodwill and Other.
3
FASB Accounting Standards Codification Topic 946,
Financial Services — Investment Companies.
4
The proposed ASU would apply only to a crypto asset
that meets the definition of an intangible asset, is fungible, is
secured by cryptography, does not provide the holder with
“enforceable rights to, or claims on, underlying goods, services, or
other assets,” resides on “a distributed ledger based on blockchain
technology, [and is] not created or issued by the reporting entity
or its related parties.”