FASB issues proposed ASU on crypto asset accounting

• The guidance would apply to digital assets that satisfy the following criteria:
  • Meet the US GAAP definition of an intangible asset
  • Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services or other assets
  • Reside or are created on a distributed ledger based on blockchain technology
  • Are secured through cryptography
    
  • Are fungible
  • Are not created or issued by the reporting entity or its related parties
• While some proposals do not apply to all entities (e.g. some acquisition cost decisions do not apply to certain entities that apply industry-specific US GAAP), the project’s overall scope encompasses all entities (i.e. public, private and not-for-profit and across all industries).

• They would be measured at fair value, with fair value changes recorded in current period earnings (see ‘Presentation’ below). 
• Not to require or permit an alternative measurement (e.g. historical cost less impairment, for crypto assets not traded in an active market).
• Commissions, transaction fees and other charges incurred to acquire crypto assets would be expensed as incurred – unless other, industry-specific US GAAP (such as ASC 946 or ASC 940) applies, in which case the entity would continue to follow that guidance.
• Measurement would not differ between public and private entities.

• Balance sheet – Holdings of in-scope crypto assets would be presented separately from other intangible assets. Some Board members observed that guidance on current versus noncurrent classification was not necessary; entities would apply existing US GAAP.
• Income statement – Gains and losses on crypto assets would be recorded in net income each period, separately presented from impairments or other changes to carrying amounts of other intangible assets.
• Statement of cash flows – Cash flows received from the sale, nearly immediately after acquisition, of crypto assets received as noncash consideration in the ordinary course of business would be classified as cash flows from operations. Otherwise, no explicit cash flows guidance would be provided; ASC 230 provides adequate guidance.

These requirements would apply equally to public and private entities, with the exception of investment companies subject to ASC 946 and not-for-profit entities subject to ASC 958, which would continue to present their financial statements in accordance with those Topics.

The following disclosure requirements would apply equally to public and private entities, and also to those entities that follow industry-specific guidance (e.g. ASC 946) to the extent not otherwise required:

• The disclosures required by ASC 820 (fair value).
• The entity’s crypto asset holdings at each reporting date presented, disaggregated by each significant holding (e.g. BTC, ETH, Litecoin). For each significant holding, the number of units held, cost basis and fair value.*
• How the cost basis for each significant crypto holding is determined.
• A roll forward of the entity’s crypto asset holdings in the aggregate, showing additions, disposals (by sale or otherwise), gains and losses, along with disclosure about the nature of the additions (e.g. purchases, mining or staking rewards) and/or disposals.
• Cumulative realized gains and losses, disaggregated so that realized gains and losses are presented on a gross, rather than net, basis.
• The fair value of any crypto assets subject to restriction, the nature and remaining duration of the restriction(s) and what conditions must be met to remove the restriction(s).*

* These disclosures would be required in both interim and annual financial statements.

• Early adoption would be permitted in any interim period as of the beginning of the entity’s fiscal year.
• The new guidance would be applied on a modified retrospective basis, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. 
• Effective dates and transition would not differ for public and nonpublic entities.
• Effective date(s) will be decided in future deliberations for a final ASU.