Accounting for Cryptocurrency: FASB Updated Rules on Crypto Assets Explained

Crypto Accounting Standards and its Recent History

The wild world of crypto is always changing. This is clear when we look at the past few years alone:

• During the COVID pandemic, the global cryptocurrency market had a massive rally, with an all-time high market cap of $3 trillion in November 2021. Hundreds of different crypto tokens were created, celebrities shelled out millions for the hottest NFT, and crypto exchanges ran massive Superbowl ads and bought sports arena naming rights (RIP Staples Center).

• In 2022, things took a sharp turn and the “crypto winter” began. It began with the implosion of the well-known exchange, FTX, and continued downward as exchange founders were indicted for massive fraud, and some so-called “stablecoins” like Terra turned out to be not-so-stable.  The crypto market cap crashed to $800 billion, a 76% drop from its all-time high.

• In 2023, regulation entered the arena and restored some confidence in the system. EU regulators set new rules around crypto, and the SEC took greater scrutiny in cryptocurrencies and exchanges. Financial institutions began applying for more-regulated investments, such as Bitcoin ETF’s, which give increased confidence to interested retail investors.  

• As of the date of this article (May 2024), the global cryptocurrency market cap has grown back to approximately $2.7 trillion. Where it goes from here is anybody’s guess…

A Bumpy Accounting History for Cryptocurrency Assets

Crypto become more popular within businesses, such as Tesla’s major stake in Bitcoin or public accounting firms like PwC accepting payment in Bitcoin. As this happened, accountants looked for guidance and found nothing.

Nobody had a strong grasp on the scope or accounting treatment for cryptocurrency. Is it a cash-equivalent? Is it an investment? Is it an intangible asset? Nobody was sure, which led to variety in practice.

To make sense of the madness, the American Institute of Certified Public Accountants (“AICPA”) developed a practice aid to assist in the accounting (and audit) of cryptocurrency and other digital assets. As the largest professional organization of CPA’s within the United States, the AICPA’s practice aid was a culmination of many knowledgeable accountants and firms, resulting in a proposed accounting treatment for crypto that gave companies something to follow.

The AICPA, in their practice aid, believed that companies should consider most standard crypto assets (such as Bitcoin, Ethereum, NFT’s, etc.) as intangible assets. That meant recording any purchased crypto at its cost, with no revaluation of the asset until it was either used/sold or impaired. A fair value “mark-to-market” treatment was not believed to be appropriate. This became the consensus for crypto accounting at the time; in fact, our original version of this article was based on that guidance.

While the AICPA’s guidance held a lot of credibility and weight, it is not considered “authoritative.” This means that it was not recognized by the US accounting standard board, the Financial Accounting Standards Board (“FASB”) as true accounting “law” which governs Generally Accepted Accounting Principles within the US (“US GAAP”). For the final say, we had to wait for the FASB.

ASU 2023-08 and Current Crypto Accounting Treatment

In 2023, the FASB’s response finally came, and with a twist.

The FASB agreed with the AICPA that most cryptocurrencies should be considered as intangible assets. However, the FASB determined they should be recorded at their fair value, with any changes in fair value recorded in a company’s income statement. This mark-to-market approach means that a company’s reported crypto assets, and related earnings, will change based on the market and its prices.

To formalize its accounting guidance and rationale behind its decision, the FASB issued Accounting Standards Update No. 2023-08, or “ASU 2023-08,” in December 2023.

The key accounting takeaways of ASU 2023-08 are as follows:

• Cryptocurrency assets are required to be remeasured at their fair value for each reporting period.

• Any changes in the fair value of cryptocurrency assets are recorded in the company’s net income/loss for that given reporting period.

• Cryptocurrency assets should be reported separate from other intangible assets on the balance sheet, and income/loss from fair value remeasurement of crypto assets should be reported separate from any changes from other intangible assets in the income statement.

• New disclosure requirements for crypto assets, including the following:

  • The name, cost basis, fair value, and number of units for each significant crypto asset holding, and aggregate fair values and cost bases for insignificant crypto holdings.

  • Disclosure of any contractual sale restrictions on crypto assets.

  • A rollforward of crypto asset holdings for each reporting period.

  • For any disposition of crypto assets (by sale or otherwise), the difference between sale/disposal price and cost basis.

  • Disclosure of gains/losses of crypto assets, if not shown separately on the income statement.

  • Accounting policy/method for determining the cost basis of crypto assets.

The new accounting guidance under ASU 2023-08 is effective for all companies (public and nonpublic) with crypto assets for fiscal years beginning after December 15, 2024; think calendar year 2025. So companies have a year to prepare for this change, though early adoption is permitted.

Upon adoption the adoption date (e.g., 1/1/2025 for calendar year entities), any changes between the old and new accounting treatment will be recorded as an adjustment to retained earnings.

Conclusion

Cryptocurrency continues to shift and evolve, and its accounting treatment is no different. What was previously the accounting consensus is no longer the case, and new disclosures are in the near future.

For any companies holding crypto assets, reach out to your technical accounting advisor, or reach out to us, to make sure you are ready for this next accounting change.