Questions have started to trickle in to firms about new FASB accounting rules for crypto assets, and the pace is expected to speed up, according to a panel discussion on May 2, 2024.
“This is something that is becoming increasingly prevalent – more and more companies are holding crypto assets although it’s not extraordinarily prominent,” Mark LaMonte, partner, at Williams Marston LLC, told the 22nd Annual Financial Reporting Conference at Baruch College in New York.
A notable issue one client raised surrounds presentation of the gains and losses on crypto assets being held, an area the rules don’t address, LaMonte said. “And the question that’s come to me… is this operating income or not operating income? If you have a company that’s holding their excess cash in some type of investment vehicle on their commercial company, that is typically going to run through non -operating income, the gains and losses on those holdings,” he said. “The crypto assets are a little different in the sense that they are still considered an intangible asset.”
LaMonte said that companies will have to make a judgmental decision when they think about how they present these holdings and the gains and losses on them in their financial statements, which is “kind of an interesting issue.” Another is “the fact that these positions do need to be marked to market regardless of whether or not there is kind of an observable market price for them,” he said. “This is something that hasn’t come across my desk yet. I know from talking to our evaluation folks, it will be a challenge without a market observable price to mark to market.”
His remarks were in response to panel moderator Angela Fergason, partner, National Professional Services Group, at PwC, who asked about “any noise about this new standard coming out or any experience with companies early adopting?” The panel included Scott Taub, managing director of Financial Reporting Advisors; and FASB Technical Director Hillary Salo.
The discussion came the same day Coinbase reported an additional $737 million in gains for the first quarter, after adopting the FASB guidance early.
The FASB issued Accounting Standards Update (ASU) No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, last year which takes effect in 2025. Early application is permitted.
The standard is one of the more popular topics for the FASB, generating a lot of discussion over the years – and a heavy push from the crypto sector.
“This was a really important project for us to take on and to complete last year,” said Salo. “One, because it was one of the top priorities that came through as part of our agenda consultation process in 2021,” she said. “We actually received over 400 comment letters from stakeholders that indicated that the current accounting model for crypto assets, accounting for them as indefinite, live, intangible assets, which is a cost less impairment model, really wasn’t reflecting the economic reality associated with those assets. And there was general agreement that fair value would be the appropriate measurement for this scope of crypto assets that are within the scope of the guidance.”
Salo said the board heard from investors specifically that they needed additional transparency into what types of crypto assets were being held and the extent of those holdings. “So the standard does provide a different disclosures, including an annual roll forward, as well as additional information related to the types of crypto assets that are being held, the cost associated with those, fair value, as well as if there are any sort of sales restrictions associated with those crypto asset holdings,” she said. “So certainly I think we’ve gotten good feedback with regards to folks who are happy with the outcome of the project.”
Since issuance in December, FASB staff haven’t had a lot of technical inquiries related to the scope of the crypto assets that are in the ASU, said Salo. “Certainly there were some stakeholders who wanted the board to go further and address other issues associated with crypto asset accounting,” she observed. “But certainly I think what we’ve done is address the main issue that came up as part of the agenda consultation process. And I think getting the measurement appropriate in this case has really helped us a lot.”
This article originally appeared in the May 8, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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