Early Adoption of FASB Crypto Guidance Spurs Clarity, Efficiency

The Financial Accounting Standards Board’s new accounting rules for certain crypto assets are designed to improve accounting and disclosure. Although they don’t take effect until 2025, companies may consider early adoption to gain potential benefits now.

The rules are intended to provide investors and other capital allocators with more relevant information that better reflects underlying economics of certain crypto assets and an entity’s financial position. They also aim to reduce the cost and complexity associated with applying current accounting and likely impact any entity—public or private—that holds crypto assets.

Old Versus New

The recent guidance, issued Dec. 13, 2023, requires entities to measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. Entities also must provide additional disclosures about holdings of certain crypto assets.

Prior to the new accounting guidance, entities (other than those within the scope of specialized industry guidance) accounted for crypto assets as indefinite-lived intangible assets in accordance with ASC 350, which required assets be measured at historical cost less impairment.

The old accounting model drew concerns among stakeholders who thought the intangible asset model didn’t faithfully represent the economics of crypto assets. It also made recognizing impairments unnecessarily complex by forcing entities to use a crypto asset’s lowest observable fair value within a reporting period with no consideration of price recoveries or rising prices.

FASB anticipates the guidance from ASU 2023-08 will better reflect economics of certain crypto assets that entities hold. The board also expects less cost and complexity for financial statement preparers, who currently have to evaluate crypto assets for impairment under existing requirements in ASC 350.

New Processes

If you plan to hold crypto on your balance sheet, adhering to these new standards will likely require new reporting processes. Your finance, treasury, accounting, and compliance teams should fully understand implications of the new rules and develop new reporting and disclosure processes to ensure compliance.

Companies have until the fiscal year beginning after Dec. 15, 2024 to implement the new accounting standard. However, companies shouldn’t wait until the required effective date to enact new processes and procedures.

The new accounting standards may not answer all questions about accounting for crypto assets. For example, not all crypto assets are covered—the ones that aren’t in scope need further evaluation and consideration. And in redeliberations on feedback received from comment letters, FASB didn’t provide explicit guidance on wrapped tokens.

Potential Benefits

If you currently have crypto in your portfolio or are considering it, here’s how the new accounting standards can help you.

Price and accounting transparency. It may better reflect the underlying economics of a company’s holdings and give a better picture of its crypto asset holdings.

Better communication with investors, stakeholders, and the public. Because the new standards aim to offer a better picture of a company’s crypto holdings through fair value reporting and additional disclosure requirements, it may be easier to communicate the performance of your crypto holdings to the public.

Users of your financial statements will likely benefit from more decision-useful information, including comparability with other crypto asset holders.

More efficient, less costly, less complicated. Companies often have carried two sets of books: one to comply with generally accepted accounting principles following the cost-less-impairment model, and one for internal and external reporting at fair value.

Companies also built specific processes to comply with the complex impairment model previously required. The new accounting standards will likely reduce cost, increase simplicity, and bring more efficiency to companies.

Early Adoption

There are good reasons to adopt the new rules before the required date. If you do, make sure you have the necessary price data to adopt early, as well as necessary information for additional disclosure requirements.

It will probably require work for your accounting and compliance departments, but the benefits could be worth the cost. Early adoption requires you re-price your current crypto assets at fair value as of the beginning of the fiscal year of adoption, then recognize any price increases or decreases subsequently as a gain or loss on your income statement.

With the price of certain crypto assets such as bitcoin increasing since Jan. 1, 2023, this could benefit companies with calendar year-ends that have crypto holdings that have appreciated recently.

Timely Standard

FASB’s new accounting standard is a win for many because it reduces cost and complexity for companies, allows companies to account for their crypto asset holdings in a manner that’s more faithfully representative of companies’ economics, and gives investors additional disclosures and insights into companies’ crypto asset holdings.

The timing of the standards release is also positive because it gives companies with calendar year-ends time to adopt the standard in their 2023 financial statements if desired.

FASB has moved quickly in response to stakeholder concerns about crypto accounting, having added the project to FASB’s Technical Agenda in May 2022 and issuing a final Accounting Standards Update in December 2023.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Amy Park is partner in the audit and assurance business of Deloitte & Touche LLP.

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