Hot Topic | January 2023

Insight

Lenders' accounting for crypto intangible asset loans

SEC staff provides views on how lenders should account for loans of crypto intangible assets like bitcoin and ether.

Scott Muir

Scott Muir

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5073


In this Hot Topic, we outline key accounting considerations for lenders of crypto intangible assets.

Applicability

All entities that loan crypto intangible assets (e.g. bitcoin or ether) to other entities or individuals

Relevant dates

  • Effective immediately

Key impacts

Accounting at loan commencement

  • The lender should derecognize crypto intangible assets loaned to a borrower if the borrower obtains the right to direct the use of the crypto units (e.g. transfer, encumber, pledge or otherwise deploy or use as it sees fit) and bears the risk of loss or theft of those assets during the loan period.
  • The lender should recognize a crypto asset loan receivable in their place, measured at the fair value of the loaned crypto assets.
  • The lender should consider and account for the risk the borrower will not return the loaned crypto assets (i.e. credit risk), using the principles in ASC 326 (credit losses) to measure any credit impairment. The crypto asset loan receivable should be presented net of any allowance for credit losses. 

Loan period accounting

  • The crypto asset loan receivable should be measured at the fair value of the loaned crypto intangible assets throughout the loan period.
  • The lender should record gains/(losses) from remeasuring a crypto asset loan receivable to fair value through earnings each period the loan is outstanding.
  • The lender should continue to consider and account for the risk the borrower will not return the loaned crypto assets (i.e. credit risk), using the principles in ASC 326 to measure any credit impairment.
  • One acceptable approach to accounting for loan fees may be to respect the stated nature of the arrangement as a loan. Therefore, the loan fees would be accounted for in a manner similar to interest on a cash loan, even though the loan is of (and the loan fees will be paid in) nonfinancial crypto intangible assets. 

End of loan accounting

  • At the end of the loan, upon repayment of the crypto asset loan receivable, the lender should derecognize the receivable and re-record the loaned crypto intangible assets at the carrying amount of the crypto asset loan receivable.

Disclosures

  • The lender should provide clear disclosures about its crypto asset lending activities.

Adoption and transition

  • Adoption of this new crypto asset lending guidance should be treated as the adoption of a new accounting principle, applied retrospectively to all periods presented in accordance with ASC 250 (accounting changes and error corrections) unless impracticable to do so.

Report contents

  • Introduction
  • Background
  • SEC staff views on lenders’ accounting
    • At loan commencement
    • During the loan period
    • Disclosures
    • Adoption and transition
  • Other lender accounting considerations

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