The Financial Accounting Standards Board (FASB) unanimously approved new rules on September 6 that will now require certain cryptocurrency assets, such as Bitcoin and Ethereum, to be measured at fair value.
“I think about my short tenure here [as FASB chair] There is no issue that has provoked such passion from people,” FASB Chairman Richard Jones said during the board’s meeting Wednesday morning. “Our goal is to best reflect the economics of a transaction and provide investors and allocators of capital with the information they need. I think this [standard] Move the needle there. I think we’ve heard overwhelmingly from investors who allocate capital based on the use of financial statements that this will provide them with better information to make decisions.”
The new standard is expected to be published before the end of this year.
Last October, the FASB recommended that fair value be the correct accounting method for crypto assets, which was a significant development as there are currently no accounting or disclosure rules specifically for crypto assets. Most crypto assets are considered indefinite-lived intangible assets, like a trademarkIn the absence of crypto-specific US GAAP.
The FASB said it received feedback that accounting for crypto assets as indefinite-lived intangible assets, which is based on a cost-less-impairment model, does not provide or reflect decision-useful information to investors, lenders, borrowers and other allocators of capital. The underlying economics of that resource.
Measuring those assets at fair value would reduce the cost and complexity associated with applying the current cost-less-impairment accounting model, the FASB noted in its exposure draft for the crypto asset scheme.
“It’s not often that we can both take costs out of the system and improve the decision usefulness of information, and it makes a very easy vote when we can do both,” FASB member Christine Botosan said during the meeting.
The new rules will apply to crypto assets that meet all of the following criteria:
- meet the definition of “depreciable asset” as defined in FASB Accounting Standards Codification Master Glossary;
- do not grant or claim enforceable rights over underlying products, services or other assets to the asset holder;
- is created or resides in a distributed ledger based on blockchain technology;
- secured through cryptography;
- Fungal; And
- Not created or issued by the reporting entity or its related parties.
Bitcoin and Ethereum would fall within these guidelines, but some stablecoins, including nonfungible tokens (NFTs) and so-called “wrapped tokens” would not.
Under the new rules, crypto assets will be presented separately from other intangible assets on the balance sheet. The primary reason for the separate presentation is the difference in measurement basis between crypto assets (fair value) and other intangible assets (cost less impairment) within project scope, Sean Prince and Nicholas Topol, a partner and a senior manager, respectively. At the accounting firm Crowe, one wrote Brief about values Last March the FASB also concluded that changes in the fair value of crypto assets should be presented separately in the income statement from changes in the value of other intangible assets (for example, impairment and amortization).
In addition, companies will disclose in their footnotes each reporting period’s significant holdings of crypto and any restrictions on those holdings, Bloomberg Tax reported on Wednesday. On an annual basis, changes in the opening and closing balances of their crypto assets are broken down by category—or must be disclosed. According to the FASB, crypto assets received as payment and immediately converted to cash will not be required to include information on their reconciliation activity.
And because crypto will be measured at fair value, companies will be subject to the disclosures required in the applicable accounting rule, ASC 820, so financial statement readers know how companies arrived at their measurements, according to Bloomberg Tax.
The accounting rules will be mandatory for all companies – public and private – for financial years beginning after December 15, 2024, including interim periods within those years. This means adoption of 2025 for calendar year end companies. Companies will be allowed to adopt the rules when the FASB formally publishes them later this year.