FASB determines the scope of its digital asset project

The Board’s decision on August 31, 2022 indicates progress on what many have considered the principal challenge to establishing digital asset accounting requirements in US GAAP, that of establishing a workable scope. Below, we summarize the Board’s scoping decision, and what lies ahead.

Applicability

• Entities with, or considering, investments in crypto or other digital assets

Relevant dates

• On May 11, 2022, the FASB decided to add a project on the accounting for digital assets to its technical agenda.
• On August 31, 2022, the FASB decided the characteristics of digital assets that will be in scope of the project. 
• Decisions about the recognition (and derecognition), measurement, presentation and disclosure of in-scope digital assets will be made in future meetings. Formal proposals will then be exposed for public comment.

Overview

• The Board previously (May 2022) decided to undertake a project to address the recognition, measurement, presentation, and disclosure of certain digital assets in the financial statements.
• The Board has since decided (August 2022) that its project should apply to:
  • fungible digital assets currently accounted for as intangible assets under US GAAP. We believe this would apply to digital assets like, but not limited to, bitcoin and ether; and
  • all entities, including those entities subject to industry-specific guidance (e.g. broker-dealers and investment companies).
• The project is still expected to focus on whether to require or permit ongoing fair value measurement for in-scope digital assets.

Project scope considerations

• The Board decided (August 2022) to focus the project on digital assets that meet the following criteria:
  • Meet the US GAAP definition of an intangible asset
  • Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services or other assets
  • Reside or created on a distributed ledger (i.e. blockchain)
  • Are secured through cryptography
  • Are fungible

The Board’s scope decision appears principally intended to capture digital assets like bitcoin and ether. However, we believe the above scoping criteria will, and are intended to, capture many other lesser-known and smaller (by market capitalization) digital assets.

Many Board members expressed a preference to rename this project Accounting for and Disclosure of Crypto Assets to reflect the now-decided project scope, which would not include many types of digital assets, such as (not exhaustive) non-fungible tokens (NFTs) and digital assets that meet the definition of either (1) a financial asset (like some stablecoins) or (2) a security.

• The Board also decided (August 2022) that, while one or more future accounting or disclosure decisions made by the Board may not apply to all entities (e.g. may not apply to certain entities that apply industry-specific US GAAP), the scope of the project would encompass all entities (i.e. public, private and not-for-profit, and across all industries).

Next Steps

• The Board will begin deliberations around the recognition (and derecognition), measurement, presentation and disclosure of in-scope digital assets. The FASB Chair observed that these ultimate requirements may not be identical for all in-scope digital assets or apply equally to all entities.
• Board members previously asked the staff to seek stakeholder input on classification within the income statement and desired elements of disaggregation (e.g. disaggregation of realized vs. unrealized gains and losses); we believe the staff’s efforts to fulfill this request continue (but this was not discussed at the August 2022 meeting).

Related Projects

• The Board acknowledged certain similarities between many digital assets and commodities but decided (May 2022) to exclude commodities from the project’s scope because, unlike digital assets, physical commodities can also be used in the production of other physical products.
• The accounting for commodities will remain on the Board’s research agenda and may be considered for addition to the Board’s technical agenda at a future date.

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