In a move to enhance the transparency and accuracy of financial reporting for crypto assets, the Financial Accounting Standards Board (FASB) has announced the release of an updated Accounting Standards Update (ASU). The amendments in the ASU, Intangibles — Goodwill and Other — Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, are specifically designed to improve how certain digital assets, such as qualifying cryptocurrency, are accounted for and disclosed in financial statements.
Key Objectives of the New ASU
FASB Chair Richard R. Jones emphasized that the primary goal of this new standard is to provide more meaningful and relevant financial information concerning specific crypto assets. The intention is to reflect more accurately the economic realities of these assets and their impact on an entity's financial position. In addition, the ASU aims to simplify and reduce the costs and complexities associated with the current accounting practices for crypto assets.
Mandatory Fair Value Measurement and Enhanced Disclosure
A critical aspect of the new ASU is its requirement for entities to measure crypto assets meeting specific criteria at their fair value each reporting period. Importantly, any changes in the fair value of these assets will now be recognized in net income, providing a clearer picture of their financial impact.
Additionally, the ASU requires comprehensive disclosure from entities about their holdings in crypto assets. This includes detailed information on significant holdings, any contractual restrictions on the sale of these assets and a roll forward of changes in their holdings during the reporting period.
Criteria for Crypto Assets Under the New ASU
The ASU applies to crypto assets that satisfy several criteria:
- They must meet the US GAAP definition of an intangible asset.
- They should not offer enforceable rights or claims on underlying goods, services, or other assets.
- They need to be created or reside on blockchain or a similar technology.
- They must be secured through cryptography.
- They must be fungible.
- They are not to be created or issued by the reporting entity or its related parties.
Effective Date and Adoption
The amendments brought by this ASU are set to take effect for fiscal years beginning after Dec. 15, 2024. This includes any interim periods within those fiscal years. Notably, the FASB has allowed for the early adoption of these standards. If an entity chooses to adopt the amendments in an interim period, it must apply them from the start of the fiscal year that includes that interim period. The effect of adoption is recognized as a cumulative effect adjustment to equity as of the beginning of the annual reporting period of adoption.
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Published on December 20, 2023