FASB Issues Proposed Update for Crypto Accounting

When it comes to regulating cryptocurrency, the federal government for roughly a decade has taken the de facto position of kicking the can down the road. Even though the task of defining what crypto is has flummoxed regulators, that hasn’t stopped people from putting their money into the paradoxical investment vehicle. The Financial Accounting Standards Board last month took a major step toward clearing up some of the confusion with the release of an exposure draft that proposed accounting rules for crypto and digital assets.

At present, financial accounting guidelines consider crypto to be an indefinite-lived intangible asset. That means owners are accounting for crypto and digital assets using a cost-less-impairment model. Crypto valuations, as such, can only go down in value, not up.

FASB has admitted the current approach lacks “decision-useful information” for stakeholders, including investors and lenders. So, the board is now proposing a fair-value accounting standard for crypto. That means owners of digital assets would report the price at which their assets could be sold. “In addition to better reflecting the economics of crypto assets, measuring those assets at fair value would potentially reduce cost and complexity associated with applying the current cost-less-impairment accounting model,” the exposure draft noted. Additionally, FASB is calling for crypto assets to be separated from other intangible assets on issuers’ balance sheets, with changes in their value also listed apart from other intangible assets on companies’ income statements.

“The proposed amendments also would require that an entity provide enhanced disclosures for both annual and interim reporting periods, which would provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings,” FASB said. Notably, all the changes would apply to all corporations with crypto holdings on their balance sheets – such as automaker Tesla – and not just companies that deal directly in the crypto sector.

To be clear, FASB isn’t going out on a limb in making this proposal. The board telegraphed in June that a change was coming. At the time, it indicated feedback from investors was significant enough to add accounting for crypto assets to its technical agenda.

Meanwhile, accounting gurus will assuredly find flaws in the specifics of FASB’s proposal – which has been true of every accounting standard update in history. Nevertheless, as lawmakers and other agencies seem intent on a policy of hoping crypto questions go away, the board deserves credit for taking action to try to deal with the uncertainty. The process of bringing this update to the public merits praise, too. As Securities and Exchange Commission Chief Accountant Paul Munter has pointed out, the updates reflect a nimble, stakeholder-driven approach that should enable FASB to produce useful guidance in a timely manner.

Latest Articles

As ESG Pledges Continue to Rise, Who is Keeping Track?

Climate-related pledges have been all the rage the last few years, with governments and corporate leaders publicly and emphatically stating their commitments to environmental, soci...

Read More

SEC Touts Gains in Enforcement Actions in 2023

As we prepare to flip the calendar to 2024, the tidal wave of announcements from federal agencies celebrating their yearly accomplishments has already started. The annual inundatio...

Read More

Risk Disclosures Reflect Concerns About Geopolitical Instability

Rounding the corner to 2024, corporate leaders and analysts are warning that geopolitical instability  – driven primarily by ongoing conflicts, political uncertainties, and upcomin...

Read More