The Financial Accounting Standards Board (FASB) on December 13 issued a long-awaited Accounting Standard Update on crypto assets. Up until this time, cryptocurrency and similar assets had no guidance under the Generally Accepted Accounting Principles (GAAP). Yesterday’s update aims to improve the accounting for and disclosure of crypto assets.
The recent trial of Sam Bankman-Fried, founder of the collapsed cryptocurrency exchange FTX Trading Ltd., brought to light the lack of guidance in accounting standards with respect to crypto assets. Despite the fact that the FTX fiasco had more to do with good old-fashioned theft than cryptocurrency, the lack of certainty in the industry was duly spotlighted.
The new standard now requires crypto assets to be measured each reporting period at fair value with the offsetting entry going to net income. Additionally, new disclosures are required to complete the picture for the users.
The amendments in the update apply to all assets that meet the following criteria:
- Meet the definition of intangible asset under GAAP;
- Do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets;
- Are created or reside on a distributed ledger based on blockchain or similar technology;
- Are secured through cryptography;
- Are fungible; and
- Are not created or issued by the reporting entity or its related parties.
While this will most likely be an evolving standard area as new information is discovered, it is an excellent start to dealing with an issue which has been, up to this point in time, relatively ignored. The provisions are effective for all entities for fiscal years beginning after December 15, 2024.
Our expert instructor Jeff Sailor will include all aspects of this new standard in his 2024 presentations with Western CPE. Stay tuned for more details coming soon!