Frequently Asked Questions About Implementation of the FASB’s New Crypto Assets Standard
This publication was updated on July 17, 2024,
to address questions raised by early adopters of ASU 2023-08
about the disclosures required for interim and year-end
reporting periods both before and after adoption of the ASU.
Text that has been added or amended since this publication’s
initial issuance has been marked with a red boldface italic date
in brackets.
Introduction
On December 13, 2023, the FASB issued ASU 2023-08,1 which provides guidance on the accounting for crypto assets (codified as
ASC 350-60).2 Although the standard will not be effective until 2025,3 early adoption is permitted for periods for which financial statements
have not yet been issued (or made available for issuance).
Early adopters may encounter certain implementation questions when addressing the
requirements of the ASU related to the types of assets that are within the ASU’s
scope, how to apply the fair value guidance to crypto assets, how to determine
significant holdings for disclosure purposes, and other accounting and
disclosure issues.
This Heads Up discusses our perspectives on several
frequently asked implementation questions related to the standard, some of which
remain unresolved as of the issuance date of this publication. Appendixes A and
B include
comprehensive examples that illustrate the annual and interim disclosure
requirements, respectively, in the year of adoption of the ASU. [Paragraph amended July 17,
2024]
For a comprehensive overview of ASU 2023-08, see Deloitte’s December 15, 2023,
Heads
Up.
Scope
While ASU 2023-08 applies to assets that meet all of the scope criteria in ASC
350-60-15-1, not all digital assets or all crypto assets will meet these
criteria. As outlined in ASC 350-60-15-1, the scope criteria are as follows:
-
The crypto asset meets the U.S. GAAP definition of an intangible asset.
-
The holder does not have “enforceable rights to or claims on underlying goods, services, or other assets.”
-
The asset is created or resides on “a distributed ledger based on blockchain or similar technology.”
-
The asset is secured by cryptography.
-
The asset is fungible.
-
The asset is “not created or issued by the reporting entity or its related parties.”4
Questions and Answers
Question 1
Are wrapped tokens within the scope of ASU 2023-08?
Answer
The term “wrapped token” generally describes a digital
asset that is pegged to the value of another digital or crypto asset or
provides the holder with the same rights or claims to the underlying
asset. Although the March 2023 proposed ASU specifically noted that
wrapped tokens were not expected to be within the scope of the new
guidance, the final ASU does not mention wrapped tokens. ASC
350-60-15-1(b) indicates that assets that “provide the asset holder with
enforceable rights to or claims on underlying goods, services, or other
assets” are not within the scope of the new guidance, regardless of
whether the underlying assets themselves would be in scope. As a result,
entities should carefully evaluate, on an asset-by-asset basis, whether
wrapped tokens meet the scope criteria in ASC 350-60, giving particular
consideration to whether the wrapped token provides any enforceable
rights to or claims on other assets (i.e., the underlying wrapped crypto
asset).
Question 2
Are stablecoins within the scope of ASU 2023-08?
Answer
A stablecoin is a digital asset that contains mechanisms designed to
minimize price volatility by linking its value to a more traditional
asset such as a fiat currency (e.g., the U.S. dollar or a commodity).
The terms of any stablecoin must be evaluated to determine the
appropriate accounting treatment. Some stablecoins will be classified as
financial assets or financial instruments. Other stablecoins might meet
the definition of intangible assets but may not meet all the scope
criteria in ASC 350-60, particularly if the stablecoin provides the
holder with enforceable rights to or claims on other assets. For
example, a stablecoin may be collateralized and redeemable for the
asset(s) used to collateralize the stablecoin.
Question 3
How should an entity account for digital assets that are not within the
scope of ASU 2023-08, such as digital assets that are not intangible
assets (e.g., certain stablecoins); digital assets with enforceable
rights to underlying goods, services, or other assets (e.g., certain
wrapped tokens); or nonfungible digital assets (e.g., nonfungible
tokens)?
Answer
The accounting for stablecoins will depend on the rights and obligations
of the stablecoin, and therefore a stablecoin could be accounted for
under the guidance on financial assets or financial instruments,
traditional intangible assets, crypto assets, or other GAAP. Similarly,
an entity may need to use the traditional intangible asset model or
another accounting model to account for digital assets such as wrapped
tokens (depending on their nature) even if the underlying crypto asset
would be within the scope of the ASU. An entity will need to use
judgment in accounting for each type of digital asset that it holds.
Since the guidance in ASU 2023-08 does not apply to assets that are not
“fungible,” questions will remain about how entities should account for
and disclose nonfungible digital assets such as nonfungible tokens
(NFTs). Because of the unique nature of NFTs, it may be difficult for an
investor or purchaser to determine (1) whether the asset should be
amortized and, if so, over how long an estimated life, and (2) whether
the asset is impaired and, if so, by how much. In addition, the investor
or purchaser may receive a bundle of rights with the purchase of an NFT,
such as a right to physical goods (e.g., branded clothing or physical
artwork), entrance to a virtual concert, lifetime membership to an elite
club, and other items that could include services to be received in the
future. The transaction price paid by the investor or purchaser would
typically need to be allocated to the multiple elements acquired on the
basis of their fair values, which may be challenging to determine.
Further, the investor or purchaser would have to evaluate the nature of
the underlying rights acquired to determine which accounting guidance
applies to each right received. For example, if the investor or
purchaser pays up front and will receive services in the future (e.g.,
hosting of virtual items associated with the NFT, gaming experiences),
the allocated cost may represent a prepaid asset. For more information
about accounting considerations related to NFTs, see Deloitte’s June 21,
2022, Accounting
Spotlight.
Quick Tip
When determining the accounting for and disclosure of digital
assets, an entity should start by assessing the scope criteria
in ASU 2023-08. If a crypto asset is deemed to be within the
scope of ASC 350-60, the crypto asset is within its scope for
all measurement and disclosure requirements of the subtopic.
However, if the digital asset is not within the scope of the
ASU, the asset would not be within the scope of any of the
guidance in ASC 350-60. Entities should consider other relevant
GAAP for potential disclosures of digital assets outside the
scope of ASC 350-60.
For additional scope questions related to SEC
Staff Accounting Bulletin (SAB) No. 121, see the
SAB 121 Applicability section
below.
Measurement
Fair Value Considerations
ASU 2023-08 requires entities to subsequently measure certain crypto assets
at fair value, with changes in fair value recorded in net income in each
reporting period. The Background Information and Basis for Conclusions of
ASU 2023-08 indicates that entities should use the existing guidance in ASC
820 in (1) determining the principal (or most advantageous) market, the
levels of inputs in the fair value hierarchy, and the fair value of the
transactions affected by related parties; (2) measuring fair value when the
volume of transactions has decreased significantly; (3) identifying
transactions that are not orderly; and (4) using quoted prices provided by
third parties. Entities have raised questions regarding how to apply the
fair value requirements in ASC 820 to crypto assets.
Questions and Answers
Question 4
What factors should entities consider in determining the
principal market for crypto assets?
Answer
The principal market is the market that has the greatest
level of volume and activity for the crypto asset that the entity can
access. There is a presumption that the market an entity transacts in is
its principal market unless there is evidence to the contrary. An entity
that primarily transacts in a private market may find it challenging to
provide evidence that a public market has more volume and activity than
the private market given the lack of public data about the private
market. Therefore, it may be difficult for the entity to assert that the
public market is the principal market in such cases (see the AICPA’s
practice aid Accounting for and Auditing of Digital
Assets).5 In addition, during the panel discussion on current SEC Office of
the Chief Accountant projects at the 2023 AICPA & CIMA Conference on
Current SEC and PCAOB Developments, Senior Associate Chief Accountant
Gaurav Hiranandani noted that because of the rapid evolution of crypto
assets, there may be a lack of consistent information about the
characteristics of different crypto asset markets. This may introduce
additional difficulties for entities in identifying a principal market.
For more information, see Deloitte’s December 10, 2023, Heads
Up.
Quick Tip
As a result of inconsistencies in the available
information about market characteristics as well as differences
in entities’ processes for identifying a principal market,
entities may have different principal markets for different
assets held by the entity on the basis of where the entity
trades. For example, an entity may identify one principal market
for Crypto Asset A and a different principal market for Crypto
Asset B. In addition, because a principal market is required to
be a market that an entity has access to, different entities
could identify different principal markets for the same assets.
For example, two entities may both hold Crypto Asset C but
because of differences in access and other potential factors,
the entities may use different principal markets when measuring
C’s fair value. See Chapter 6 of Deloitte’s
Roadmap Fair Value Measurements and Disclosures (Including
the Fair Value Option) for additional
information on the principal market for fair value
measurements.
Question 5
Is it acceptable for an entity to identify a market
aggregator tool as its principal market?
Answer
A market aggregator tool retrieves and processes
real-time data for various assets. Among other uses, these tools may be
used to aggregate data across multiple markets to identify price points
and volume at any specific moment. Because a market aggregator tool is
not a market but instead provides multiple quotes from different
marketplaces, it would be inappropriate to identify a market aggregator
tool as the principal market under ASC 820. However, an aggregator tool
can be leveraged (e.g., to determine which markets have the highest
volume of activity) to identify the entity’s principal market if that
market meets the criteria to be considered the entity’s principal market
under ASC 820.
For more information about the accounting and disclosure
guidance in ASC 820, see Deloitte’s Roadmap Fair Value Measurements and Disclosures
(Including the Fair Value Option).
Transaction Costs Incurred to Acquire Crypto Assets
The amendments do not provide guidance on how to recognize or present
transaction costs incurred to acquire crypto assets, such as commissions and
other related transaction fees. The March 2023 proposed ASU would have
required transaction costs to be expensed as incurred, but the FASB decided
not to address the accounting for transaction costs in the final ASU. While
the ASU does not change industry-specific guidance for an entity that is
required to capitalize transaction costs, questions may arise regarding how
to account for such costs.
Question and Answer
Question 6
How should an entity account for transaction costs?
Answer
Because ASU 2023-08 does not address the accounting for transaction
costs, in the absence of industry-specific guidance (e.g., investment
companies under ASC 946), an entity would typically apply ASC
350-30-30-1, which generally requires the capitalization of transaction
costs by reference to ASC 805-50-30-1 through 30-4 unless the digital
asset is acquired as part of a business combination. However, paragraph
BC35 of ASU 2023-08 notes that “regardless of whether transaction costs
are capitalized or expensed, the effect on comprehensive income in the
period that crypto assets are acquired is the same because those crypto
assets are required to be remeasured to fair value.” This means that the
requirement to subsequently measure the assets at fair value should
result in a similar timing of expense recognition (and therefore the
same impact on net income) as the immediate expensing of transactions
costs (i.e., a cost that is capitalized would then form part of the
unrealized loss on the remeasurement of the crypto asset since crypto
assets are required to be subsequently measured at fair value).
If capitalized, transaction costs incurred to acquire crypto assets are
likely to be presented as a cash outflow from investing activity (if
settled in cash).
Presentation
Income Statement Presentation
ASU 2023-08 does not prescribe where remeasurement gains and losses should be
recorded within the income statement. Therefore, early adopters have raised
the question below.
Question and Answer
Question 7
Where should remeasurement gains and losses be presented within the
income statement?
Answer
An entity should consider the nature of an investment in crypto asset
holdings that are within the scope of ASU 2023-08. If the holdings are
operational in nature, the entity may consider recognizing the gains and
losses (both realized and unrealized) within operating income. However,
if the holdings are for investment purposes rather than operational, it
may be appropriate to include the remeasurement gains and losses below
the line item for operating income if the entity presents that subtotal.
Entities should apply judgment when evaluating the presentation of
operating or nonoperating gains and losses on crypto asset holdings.
Note that these amounts should be presented separately from changes in
other intangible assets.
See Section 2.9.2.4 of Deloitte’s
Roadmap SEC Comment Letter Considerations,
Including Industry Insights for additional
considerations on operating versus nonoperating subtotal
presentation.
Disclosures
Evaluating Holdings for Significance
ASU 2023-08 adds ASC 350-60-50-1, which requires an entity to disclose
certain information for each significant crypto asset holding. Because of
this requirement, entities have raised questions regarding the meaning of a
“significant” crypto asset holding under the ASU.
Question and Answer
Question 8
What factors should an entity consider in determining its significant
crypto asset holdings?
Answer
While ASU 2023-08 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 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 apply appropriate judgment in determining which holdings
are significant, which may include considering both qualitative and
quantitative factors. In making this determination, entities should aim
to provide more transparency to investors to enable them to understand
present risks. Entities should apply a consistent method over time and
may consider disclosing their policy for identifying significant
holdings.
Cost-Basis Method
The ASU requires entities to disclose their method of determining the cost
basis for their crypto asset holdings. Entities have raised questions about
the appropriate method to use.
Question and Answer
Question 9
What methods may be used in the disclosure of the cost basis?
Answer
ASU 2023-08 allows multiple cost methods (e.g., first
in, first out; specific identification; average cost; or other methods)
for determining the cost basis of crypto assets. Note that before
adoption of the ASU, impairment testing under the cost-less-impairment
model was performed at the lowest level of identifiable cash flows,
which resulted in operational challenges for entities using the average
cost method for tracking the cost basis of crypto assets. Therefore,
more entities might use the average cost method after adopting the
ASU.
Gains and Losses in the Crypto Asset Reconciliation
The new guidance requires a reconciliation, in the aggregate, of activity
from the opening balance to the closing balance of crypto assets. Such a
reconciliation should include the disclosure, on a
crypto-asset-by-crypto-asset basis, of both the gains and losses from
remeasurement that are included in net income.
See Question 18 for a discussion of how an entity would present
the reconciliation in interim reporting periods in the year of adoption. [Paragraph added July 17,
2024]
Question and Answer
Question 10
How would an entity disclose remeasurement gains and losses in the
reconciliation?
Answer
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 crypto asset holdings that had net losses from
remeasurement.
Total Amount of Cumulative Realized Gains and Losses
Under ASC 350-60-50-4(b), 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 a crypto asset purchased in a prior period had
unrealized gains or losses in that prior period but was sold in the current
period).
Question and Answer
Question 11
How would an entity disclose cumulative realized gains and losses on
crypto assets?
Answer
Assume that an entity’s dispositions of 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 the disclosure of remeasurement gains and losses,
which is discussed above, cumulative realized gains and cumulative
realized losses are presented as the total realized gains for all 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). While entities are permitted
to voluntarily provide disaggregated realized gains and losses for
individual crypto assets, ASU 2023-08 does not require that level of
disclosure. If a more disaggregated disclosure is provided, we believe
that the entity should ensure that the total amount of cumulative
realized gains and cumulative realized losses is included in the
disclosure.
Note that if entities receive crypto assets as noncash consideration in
the ordinary course of business and convert those crypto assets nearly
immediately into cash, they do not need to include that activity in the
above disclosure.
SAB 121 Applicability
SAB 121 requires an entity that safeguards crypto assets to record a
safeguarding obligation and corresponding asset on its balance sheet. Since
safeguarding liabilities and the corresponding assets are measured at the
fair value of the digital assets held, entities are required to include
disclosures regarding fair value measurements under ASC 820. Therefore,
questions have arisen regarding the interaction of SAB 121 and the
disclosures in ASC 350-60.
Questions and Answers
Question 12
Are SAB 121 assets required to be included in the crypto asset
disclosures introduced by ASU 2023-08?
Answer
As discussed in SAB 121, the safeguarding asset is separate and distinct
from the crypto asset that is being safeguarded. Therefore, safeguarding
assets within the scope of SAB 121 are not subject to the disclosure
requirements in ASC 350-60. In addition, safeguarding assets should be
presented separately from crypto assets on the balance sheet.
Question 13
Should assets within the scope of SAB 121 be disclosed together or
separately from crypto assets in the ASC 820 fair value disclosures?
Answer
Since assets within the scope of SAB 121 are distinct from the actual
crypto assets that are being safeguarded, we believe that those assets
should be evaluated and disclosed separately under ASC 820.
Transition
Entities that are early adopting the guidance in ASU 2023-08 have raised
accounting and disclosure questions related to the transition requirements upon
initial adoption of the ASU.
Cumulative-Effect Adjustment
In the year of adoption, ASC 350-60-65-1(b) requires an
entity to recognize a cumulative-effect “adjustment to the opening balance
of retained earnings (or other appropriate components of equity or net
assets in the statement of financial position) as of the beginning of the
annual reporting period” in which an entity adopts the amendments.6
Previously, entities may have used, or been required to use, a mark-to-market
method of accounting for digital assets for tax purposes. Entities that have
historically marked their digital assets to market for tax purposes may have
a deferred tax impact that is eliminated upon subsequent measurements for
assets within the scope of the ASU. Entities should carefully consider and
analyze the tax accounting methods undertaken to ensure that the tax impacts
of adoption are appropriately reflected in the financial statements.
Question and Answer
Question 14
What adjustments are recorded through retained earnings as part of the
cumulative-effect adjustment upon adoption of ASU 2023-08?
Answer
The retained earnings adjustment includes the offsetting entry for the
difference between (1) the carrying amount of crypto assets held as of
the end of the prior reporting period under the cost-less-impairment
model and (2) the fair value of those crypto assets as of the beginning
of the year in which the entity first applies the ASU. Note that any
other adjustments related to balance sheet amounts that result from the
adoption of the ASU (e.g., adjustments to deferred tax assets as a
result of the remeasurement of crypto assets) would also be included in
the cumulative-effect adjustment to retained earnings upon adoption.
Hedge Accounting
Before adopting ASU 2023-08, an entity could designate
crypto assets in a hedging relationship (e.g., crypto asset borrowings),
which would allow the crypto assets to be remeasured at fair value. Upon
adoption of the ASU, an entity would be required to remeasure any crypto
assets within the scope of the new guidance at fair value through earnings,
and thus the crypto assets would not be eligible to be designated as a
hedged item under ASC 815-20-25-43(c)(3).
Question and Answer
Question 15
If an entity previously elected hedge accounting for a
crypto asset borrowing arrangement (with the crypto asset as the hedged
item), what is the cost basis of the crypto asset upon ceasing hedge
accounting?
Answer
Whenever an entity ceases hedge accounting for a fair value hedge, the
fair value of the hedged item (the crypto asset) would form its new cost
basis. Therefore, it is not likely that an entity would need to make an
adjustment to the carrying basis of the crypto assets upon adoption of
ASU 2023-08. For more information about the guidance on hedging, see
Deloitte’s Roadmap Hedge
Accounting.
Quick Tip
While hedge accounting requires the gain or loss on the hedging
instrument and the hedged item to be recorded in the same
financial statement line item, an entity might record
remeasurement gains and losses on crypto assets in a separate
line item from that for derivative gains and losses on a
bifurcated embedded derivative related to an obligation to
return crypto assets.
Cost-Basis Disclosures
Entities adopting ASU 2023-08 may have questions regarding the cost basis
disclosed for significant holdings (ASC 350-60-50-1) and the calculation and
disclosure of realized gains and losses.
Question and Answer
Question 16
In cost-basis disclosures, should an entity use (1) the basis of the
assets as recorded in the prior year-end balance sheet (which may have
been impaired) or (2) the cost basis of the assets when they were
initially recognized?
Answer
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, we believe that the cost
basis of the assets as of the end of the prior year, inclusive of any
impairments, should be used for the disclosure. However, an entity may
instead elect to use an alternative cost basis. The entity should make
sure to disclose the basis used as of the adoption date in its
disclosures.
Interim and Year-End Disclosures in the Year of Adoption
[Section added July 17, 2024]
Entities that are adopting ASU 2023-08 may have questions
regarding the disclosures required for interim and year-end reporting
periods. Note that in the year of adoption, entities should also consider
whether sections of the Form 10-Q (e.g., Item 3 or Item 4) may need to be
updated as a result of the adoption.
Questions and Answers
Question 17
Should an entity that is adopting ASU 2023-08 provide
both annual and interim disclosures in the first interim period after
adoption and in each subsequent interim period of the adoption year?
Answer
Yes. The SEC rules and staff interpretations require SEC
registrants to provide both annual and interim disclosures in the first
interim period after the adoption of a new accounting standard and in
each subsequent quarter in the year of adoption. Specifically,
Section
1500 of the SEC Division of Corporation Finance
Financial Reporting Manual states:
[SEC Regulation] S-X Article 10 requires
disclosures about material matters that were not disclosed in
the most recent annual financial statements. Accordingly, when a
registrant adopts a new accounting standard in an interim
period, the registrant is expected to provide both the annual
and the interim period financial statement disclosures
prescribed by the new accounting standard, to the extent not
duplicative. These disclosures should be included in each
quarterly report in the year of adoption.
In a manner consistent with the above guidance and ASC
250-10-50-2, an entity adopting ASU 2023-08 must provide the interim and
annual disclosures required by ASC 350-60-50 in each interim period of
the adoption year.
Question 18
How should an entity that is adopting ASU 2023-08
present the reconciliation in the interim reporting periods in the year
of adoption?
Answer
As stated in Question 17, entities that are
adopting ASU 2023-08 will be required to provide reconciliations for all
interim periods in the year of adoption. Such reconciliations could be
presented in various formats. For example, an entity could present the
reconciliation for the second quarter ending June 30, 20X4, as follows:
Option 1 — Each quarter-to-date reconciliation in
tabular format (e.g., rollforward from January 1, 20X4, to March
31, 20X4, to June 30, 20X4).
Option 2 — A year-to-date reconciliation in tabular
format (e.g., rollforward from January 1, 20X4, to June 30,
20X4).
Option 3 — Quarter-to-date and year-to-date
reconciliations in tabular format (e.g., rollforward from April
1, 20X4, to June 30, 20X4, and from January 1, 20X4, to June 30,
20X4).
Appendix B provides an example of how an entity can
present a reconciliation in the format noted in Option 3, which
represents a combination of Options 1 and 2. If an entity is planning to
present only a year-to-date reconciliation (Option 2), it may be
beneficial to consider whether previous filings included quarter-to-date
information.
SEC Regulation S-K, Item 302, “Supplementary Financial Information”
[Section added July 17, 2024]
Entities that are adopting ASU 2023-08 may also have
questions about the applicability of SEC Regulation S-K, Item 302, in
the year of adoption.
Question and Answer
Question 19
How should an entity that is adopting ASU 2023-08
present Item 302(a) disclosures in an offering or in the first Form 10-K
after adoption in the year of adoption?
Answer
Under Item 302(a),7 if an entity reports a material retrospective change (or changes)
for any of the quarters within the two most recent fiscal years, it must
disclose (1) an explanation for the material change(s) and (2)
summarized financial information reflecting such change(s) for the
affected quarterly periods, including the fourth quarter. Summarized
financial information, which is required in a Form 10-K and certain
registration statements, should include, at a minimum:
-
Net sales or gross revenues.
-
Gross profit (or costs and expenses related to net sales or gross revenues).
-
Income (loss) from continuing operations.
-
Net income (loss).
-
Net income (loss) attributable to the entity.
-
Earnings (loss) per share.
Since this requirement only applies when there is a material
retrospective change, an entity may not have provided such information
in its most recent Form 10-K. However, upon reporting a material
retrospective change, an entity would be required to include such
disclosure in its next Form 10-K or in conjunction with reissuance of
its annual financial statements in certain registration statements. An
entity should consult with its legal counsel and independent auditor
regarding the appropriate disclosure to provide in the new registration
statement.
Appendix A — Example of Annual Disclosures
[Appendix title
amended July 17, 2024]
Below is an illustrative example of required annual disclosures
for an entity that adopted ASU 2023-08 in 20X4. 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. Crypto assets that are not within the
scope of the ASU should be separately disclosed. [Paragraph amended July 17, 2024]
Interim disclosure requirements may not necessarily be the same
as annual requirements. Further, interim disclosure requirements for fiscal
years after the adoption year may not necessarily be the same as interim
disclosure requirements in the year of adoption. See Question 17 for discussion of interim and
annual disclosure requirements. Also see Question 18 and Appendix B for a discussion and example,
respectively, of a reconciliation disclosure for interim period reporting in the
year of adoption. [Paragraph
added July 17, 2024]
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.
Quick Tip
For 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.
Two potential scenarios are as follows:
- 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 $15 million as of December 31, 20X4. [Paragraph added July 17, 2024]
- In March 20X4, the Company entered into a credit facility with Lender as discussed in Note Z, Debt. As part of the credit facility, the Company pledged Crypto A as collateral for the credit facility that is subject to contractual sale restrictions until the first anniversary of the credit facility. Following the expiration of this restriction, the Company will be subject to certain, more limited transfer restrictions depending on the liquidity ratio held by the Company. The fair value of the Crypto A pledged 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:
Quick Tip
As discussed above, for annual and interim periods, the ASU requires
entities to disclose 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 crypto
assets that are determined not to be individually significant. While
not required, entities may disclose narratively the number of
insignificant crypto assets, aggregated into one line item within
the footnote.
As discussed in Question 8,
significant crypto asset holdings are not defined in the ASU.
However, the ASU states that significance is determined by the
assets’ fair value, and 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 crypto assets.
-
The concept of “significant” in other GAAP.
-
Entity materiality.
The following table
represents a reconciliation of the fair values of the Company’s crypto
assets held for the year ended December 31, 20X4:
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 year ended December
31, 20X4, the Company had crypto asset dispositions of $15.0 million,
inclusive of realized gains of $5.0 million and realized losses of $1.0
million.
Quick Tip
As shown above, an entity is required to disclose an annual
reconciliation of aggregate crypto asset holdings, from the opening
balance to the closing balance, that addresses (1) additions (i.e.,
discussing the nature of the activities resulting in those
additions), (2) dispositions (i.e., discussing the nature of the
activities and the total amount of cumulative realized gains and
losses from dispositions during the period), and (3) net
remeasurement gains and net remeasurement losses, each on a
crypto-asset-by-crypto-asset basis, that are included in net income
for that respective period. Assets with net remeasurement gains or
net remeasurement losses within the period should be presented in
the applicable line of the reconciliation (e.g., a 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).
The Company uses a first-in, first-out methodology8 to assign costs to crypto assets for purposes of the crypto assets
held and realized gains and losses disclosures above.
Quick Tip
The ASU does not prescribe a specific cost method for determining the
cost basis; however, the method an entity used must be disclosed.
Methods could include:
-
First in, first out.
-
Specific identification.
-
Average cost.
-
Other cost methods.
Disclosure Considerations in Transition9
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, 20X4, the
Company has adopted ASU 2023-08.
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,
20X4.
Appendix B — Example Reconciliation Disclosure for Interim Reporting Period in the Year of Adoption
[Appendix added
July 17, 2024]
Below is an illustrative example of a required interim
disclosure for a calendar-year-end entity that adopted ASU 2023-08 in the
beginning of 20X4. The example shows how an entity may present the
reconciliation for the second quarter ending June 30, 20X4.
The following table represents a reconciliation of the fair values of the
Company’s crypto assets held for the three-month and six-month periods ending
June 30, 20X4:
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, 20X4, the Company had crypto
asset dispositions of $2.0 million, inclusive of realized gains of $1.0 million
and realized losses of $0.5 million. During the six months ended June 30, 20X4,
the Company had crypto asset dispositions of $10.0 million, inclusive of
realized gains of $1.5 million and realized losses of $0.8 million.
Connecting the Dots
As noted in the answer to Question 17, the SEC rules and
staff interpretations require SEC registrants to provide both annual and
interim disclosures in the first interim period after the adoption of a
new accounting standard and in each subsequent quarter in the year of
adoption.
Contacts
|
PJ Theisen
Audit &
Assurance
Partner
Deloitte &
Touche LLP
+1 202 220
2824
|
|
Tony Goncalves
Audit & Assurance
Managing Director
Deloitte & Touche LLP
+1 202 879 4910
|
|
Stephen McKinney
Audit &
Assurance
Managing
Director
Deloitte &
Touche LLP
+1 203 761
3579
|
|
Keaton Ackerman
Audit &
Assurance
Manager
Deloitte &
Touche LLP
+1 585 238
3363
|
|
Romas M. Tamrakar
Audit & Assurance
Senior Manager
Deloitte & Touche LLP
+1 215 282 1197
|
For information about Deloitte’s service
offerings related to digital assets, please contact:
|
Amy Park
Audit &
Assurance
Partner
Deloitte &
Touche LLP
+1 312 486
4515
|
Footnotes
1
FASB Accounting Standards Update (ASU) No. 2023-08, Accounting for and
Disclosure of Crypto Assets.
2
For titles of FASB Accounting Standards
Codification (ASC) references, see Deloitte’s “Titles of Topics and
Subtopics in the FASB Accounting Standards
Codification.”
3
For all entities, the ASU’s amendments are effective for
fiscal years beginning after December 15, 2024, including interim
periods within those years. Early adoption is permitted. If an entity
adopts the amendments in an interim period, it must adopt them as of the
beginning of the fiscal year that includes that interim period. See the
Effective Date
and Transition section within Deloitte’s December 15,
2023, Heads Up for more
information.
4
A reporting entity that performs mining or validating
services, and that receives newly created crypto assets as
consideration for those services, would not be deemed the
creator of those crypto assets as long as the services
constitute the entity’s only involvement with the creation
of the asset.
5
The practice aid provides nonauthoritative
interpretive guidance from the AICPA’s Digital Assets Working
Group on how to account for and audit digital assets.
6
The cumulative-effect adjustment means that the
impact of a change in accounting principle is reported as a
cumulative catch-up adjustment to beginning retained earnings. The
Board decided against requiring a full retrospective approach, or
providing an option for entities to do so, because the expected
costs of full retrospective application may not justify the
potential expected benefits for investors. [Paragraph amended July 17,
2024]
In the year of adoption, entities should ensure that
their accounting policies specify the disclosures needed both before
and after the adoption of ASU 2023-08. [Paragraph added July 17,
2024]
7
Smaller reporting companies and foreign private
issuers are exempt from the requirements in Item 302.
8
Note that for illustrative purposes only, the first-in, first-out
method is used as the cost method in this example.
9
While not specifically required in the ASU, this example
language may be provided in an entity’s financial statements in
accordance with ASC 250-10-50. Before adopting the ASU, an entity should
consider SAB Topic 11.M (SAB 74),
“Miscellaneous Disclosure; Disclosure of the Impact That Recently Issued
Accounting Standards Will Have on the Financial Statements of the
Registrant When Adopted in a Future Period.”