FASB to issue final crypto asset accounting ASU

• The final guidance will apply to digital assets that satisfy 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  (including digital assets within the scope of the final ASU)
  • Reside or are created on a distributed ledger based on blockchain or similar technology
  • Are secured through cryptography
  • Are fungible
  • Are not created or issued by the reporting entity or its related parties
• ‘Wrapped tokens’, referred to in the proposed ASU, will not be discussed or otherwise addressed in the final ASU.
• While some provisions of the final ASU will not apply to all entities (e.g. some financial statement presentation requirements will not apply to certain entities that apply industry-specific US GAAP), ASC Subtopic 350-60’s scope encompasses all entities (i.e. public, private and not-for-profit, and across all industries).

• Measured at fair value, with fair value changes recorded in current period earnings (see Presentation below). 
• No alternative measurement (e.g. historical cost less impairment) for crypto assets not traded in an active market required or permitted.
• No explicit guidance will be provided on accounting for transaction costs associated with acquiring in-scope crypto assets. This contrasts with the proposed ASU, which proposed requiring all such costs to be expensed as incurred – unless other, industry-specific US GAAP (e.g. ASC 946 or ASC 940) applies.

• Balance sheet – Holdings of in-scope crypto assets presented separately from other intangible assets. No guidance on current versus noncurrent classification will be provided; entities will apply existing US GAAP. 
• Income statement – Gains and losses on crypto assets will be recorded in net income each period, separately presented from impairments or other changes to carrying amounts of other intangible assets. No guidance on operating versus nonoperating classification of such gains and losses will be provided; entities will apply existing US GAAP. 
• Statement of cash flows – Cash flows received from the sale, nearly immediately after acquisition, of crypto assets received as noncash consideration in the ordinary course of business will be classified as cash flows from operations. An exception arises if the entity is a not-for-profit entity and there are donor-imposed restrictions that limit the entity’s use of the donated crypto asset to long-term purposes; in that circumstance, those cash flows should be classified as financing. Otherwise, no explicit cash flows guidance will be provided. 

These requirements will apply equally to all entities, with the exception of investment companies subject to ASC 946 and not-for-profit entities subject to ASC 958, which will continue to present their financial statements in accordance with those Topics.

The following disclosure requirements apply equally to all entities, including those entities that follow industry-specific guidance (e.g. ASC 946) to the extent not otherwise required:

• The disclosures required by ASC 820 (fair value).
• The entity’s crypto asset holdings at each reporting date presented, disaggregated by each significant holding (e.g. BTC, ETH, Litecoin). For each significant holding, the number of units held, cost basis and fair value.*
• How the cost basis for each significant crypto holding is determined.
• A roll forward of the entity’s crypto asset holdings (other than crypto assets received as noncash consideration in the ordinary course of business and converted nearly immediately into cash) in the aggregate, showing additions, disposals (by sale or otherwise), and gains and losses. In addition, an entity shall disclose the following information about the roll forward:
  • The nature of its additions (e.g. purchases, mining or staking rewards) and/or disposals during the period.
  • If not presented separately, disclose the line item in which gains and losses are reported in the income statement.
  • Cumulative realized gains and losses, disaggregated so that realized gains and losses are presented on a gross (versus net) basis.
• The fair value of any crypto assets subject to restriction, the nature and remaining duration of the restriction(s) and what conditions must be met to remove the restriction(s).*

* Required in both interim and annual financial statements.

• Modified retrospective transition method required, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.  

• The FASB staff will draft the final ASU for vote by written ballot. We expect the final ASU to be issued before the end of 2023.