Some of the nation’s largest crypto businesses, Big Four accounting firms and others, told the FASB that proposed crypto assets accounting rules would be operable with fixes, but guidance is still needed for other equally pressing tokens that were not included.
In general, businesses want to be able to adopt the proposed guidance immediately upon issuance as a first step, according to June 2023 comment letters to the board.
“We expect to be able to implement the proposed amendments within one quarter. We strongly support an early adoption transition option,” Jennifer Jones, chief accounting officer at Coinbase Global, Inc, said in a June 5 letter.
Binance.US’s Chief Accounting Officer Cary Okawa said he believes “that most companies should be able to implement the proposed amendments in a fairly short amount of time and early adoption should be permitted.” And MicroStrategy Inc., known for its bet on Bitcoin, said the proposal “can be implemented without significant additional burden since entities that hold crypto assets have already had to track fair value for impairment purposes under the current historical cost-less-impairment accounting model.”
Among suggestions from the crypto sector is that the FASB add a subsequent project to its agenda toward developing more accounting rules for digital assets, including crypto assets.
Digital asset platform Kraken, for example, said the proposal is operable and should not be held up but there is still an urgent need for more guidance. There is “an urgent need for additional authoritative guidance in several areas beginning with the following areas: stablecoins; wrapped tokens, including tax considerations; crypto-based loans receivable; crypto-based borrowings; and non-fungible tokens,” Natalia Voronina, Kraken’s chief accounting officer, wrote.
About half of the 81 comment letters the FASB received to Proposed Accounting Standards Update (ASU) No.2023-ED200, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets to date, came from the crypto marketplace, some of which have recently come under SEC crackdown.
If finalized, the guidance would require crypto assets that meet six specific conditions to be measured at fair value and changes in value recognized in each reporting period as profit or loss. Businesses would present crypto assets separately from other intangible assets on the balance and also disclose information about significant crypto holdings, restrictions, and changes in those holdings.
The change is popular because today, absent the application of industry-specific guidance, a business is only permitted to mark the carrying value of crypto assets below their initial cost, but cannot mark them up, including for previously recorded losses. As a result, the volatility and full range of crypto asset price movements is not being captured directly in the financial statements, and businesses may be carrying such assets at amounts significantly below the levels at which they could be readily converted to cash.
The proposal is scoped to address crypto assets that are: fungible; deemed to be intangible; do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets; are created or reside on a distributed ledger based on blockchain technology; secured through cryptography; and are not created or issued by the reporting entity or its related parties.
Among areas flagged as needing revisions include the scoping conditions of the rules.
Big Four Also Suggest Adding Next Crypto Project
Big Four and other accounting firms also had a mix of suggestions including that the board expand the scope of the proposal, plus add a separate crypto project to its technical agenda to tackle other issues as quickly as possible.
PwC LLP suggested that the current proposal’s scope be expanded to include crypto assets that provide the asset holder with the right to other crypto assets that would otherwise be in the scope of the proposal as these assets are similar to those included in the proposed ASU.
In addition, Ernst & Young LLP suggested that certain clarifications need to be made to improve the operability of the proposed guidance for financial statement preparers and reduce potential diversity in implementation. “…we believe that the proposed guidance should apply to certain wrapped tokens,” as their use has become common in practice, “resulting in the availability of quoted prices for them in active markets,” EY said.
Similar to some in the crypto marketplace, KPMG LLP and Deloitte & Touche LLP suggested a separate project was warranted by the board after the proposal is finalized.
“We encourage the Board to consider developing derecognition guidance specific to crypto assets at the conclusion of this current project,” after finalizing the current proposal, “as expeditiously as appropriate due process permits,” KPMG wrote.
Deloitte acknowledged that the proposal addresses the most pressing needs, but “believe that more guidance will be necessary to respond to other issues associated with crypto assets,” and therefore “recommend that the FASB begin or continue to develop guidance” on the following aspects of the accounting for digital assets, among others in another project:
- The derecognition of crypto assets;
- The accounting for crypto asset lending, including consideration of recent views expressed by the SEC;
- The accounting for stablecoins; and
- The accounting for nonfungible tokens (NFTs).
This article originally appeared in the June 13, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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