On December 13, 2023, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2023-08, “Accounting for and Disclosure of Crypto Assets.” The amendments in this long-awaited update revise the accounting for crypto assets under U.S. Generally Accepted Accounting Principles (GAAP) to better reflect the economics of crypto assets.
Crypto assets, also known as digital assets, are a digital representation of value or a right that can be transferred or stored electronically using a distributed ledger based on blockchain or similar technology. Crypto assets do not generally have tangible physical attributes. Perhaps the most commonly known crypto asset is “Bitcoin” however, there are thousands of cryptocurrency types in existence.
Prior to the issuance of this update, crypto assets were accounted for as indefinite-lived intangible assets. Those assets were tested for impairment at least annually. If the carrying amount of the asset exceeded its fair value, the holder was required to recognize an impairment loss and reduce the carrying amount of the asset to its fair value. Subsequent increases in the carrying amount of the asset and reversal of the impairment loss was prohibited. Investors, lenders, creditors and other stakeholders had long stated that the above model of accounting for crypto assets did not provide decision-useful information. Specifically, accounting for only decreases and not increases, in the value of crypto assets did not provide relevant information to reflect the underlying economics of those assets and a holding entity’s financial position.
FASB ASU 2023-08 amends the accounting for crypto assets by stating that changes in fair value are to be recognized in net income each reporting period. For example, for a crypto asset purchased for $1,000 during the year and valued at $2,500 at year-end, the holding entity would record the $1,500 increase in value in that year’s net income.
The amendments in this update also require the holding entity to present crypto assets measured at fair value separately on the balance sheet; and changes from the remeasurement of crypto assets separately in the income statement. Finally, there are more robust disclosures of the crypto assets required in the holding entity’s financial statements and footnotes.
The amendments in FASB ASU 2023-08 are effective for all entities for fiscal years beginning after December 15, 2024 (calendar year 2025 financial statements). Early adoption is permitted for financial statements that have not yet been issued. A cumulative adjustment to the opening balance of retained earnings will be required as of the beginning of the annual reporting period in which an entity adopts this new Standard.
For more information, contact Rick Gilmartin, CPA, Principal, at rgilmartin@tsacpa.com or 716.633.1373.
