FASB Issues Long-Awaited Disclosure Standard

Roughly a month after the Financial Accounting Standards Board published its first accounting standard for the disclosure of crypto assets, companies and accountants seeking clarity on crypto matters, for the first time, have a standard that provides direct accounting and disclosure guidance on crypto assets. “The new standard responds to feedback from stakeholders of all backgrounds who indicated that improving the accounting for and disclosure of crypto assets should be a top priority for the Board,” FASB Chair Richard R. Jones said.

Issued on December 13, amendments in the Accounting Standards Update are designed to increase transparency by more accurately reflecting the economics of Bitcoin and similar tokens in financial reporting. They will require an entity to measure crypto assets at fair value each reporting period with changes in fair value recognized in net income. The changes aim to improve the information provided to investors by requiring disclosure about significant holdings, contractual sale restrictions and changes during the reporting period.

The new standard will “provide investors and other capital allocators with more relevant information that better reflects the underlying economics of certain crypto assets and an entity’s financial position while reducing cost and complexity associated with applying current accounting,” Jones said. Businesses and their accounting departments have long supported the change – particularly the ability to recognize losses and gains immediately and treat digital assets like financial assets instead of as indefinite-lived intangible assets.

Matt Graham, senior manager at accounting firm Moss Adams, noted that the standard constitutes “a big baby step in the right direction.” Graham said that the guidance applies to an estimated 60% to 75% on the crypto sector’s market capitalization.

“It’s good in terms of its broad coverage of value, but it’s not great in terms of its low coverage of asset types,” Graham added. “That said, it’s better to take a step in the right direction than to not do anything at all or wait until we have a massively comprehensive framework that covers everything.”

According to FASB, the amendments in the update are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. The new standard applies to all assets that meet all the following criteria:

  1. They meet the definition of intangible asset as defined in the FASB Accounting Standards Codification®.
  2. They do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets.
  3. They are created or reside on a distributed ledger based on blockchain or similar technology.
  4. They are secured through cryptography.
  5. They are fungible.
  6. They are not created or issued by the reporting entity or its related parties.

In the “wild west” of the crypto industry, where rules have historically been either non-existent or easily sidestepped, FASB’s new standards appear to be a welcome addition for proponents of a fair playing field. And for a sector whose future will almost certainly be fraught with more challenges, FASB has, at least for now, given it an elusive victory.

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