The FASB was asked during a joint discussion with the International Accounting Standards Board (IASB) whether the board “touched base” with the U.S. Federal Reserve about its project on cryptocurrencies, and “if not why.”
“If you have, what was their reaction to [the FASB’s] project?” IASB member Bertrand Perrin asked at the Sept. 30, 2022, discussions.
“Speaking of a large organization like the Fed – we didn’t to all of them but we certainly talked to our regular contacts and the office of the chief accountant is well aware of our project,” FASB Chair Richard Jones replied. “And we solicited their feedback as part of our project just like we do any stakeholder,” he said. “Our primary regulator, the Securities and Exchange Commission, is well aware of our project, our agenda outreach and the direction we’re heading.”
And “the Feds, how did they react to the fact that you will address digital assets?” Perrin pressed.
The FASB’s project is narrowly scoped purely to cryptocurrencies which would not include any fiat currencies effectively that were digitized, Jones explained. “But we have not gotten an official response from them in any way, that’s the benefit of our exposure draft – to the extent they feel strongly they’ll be able to provide us with a response,” he said.
The question comes amid talks by the Federal Reserve about whether to pursue or implement a central bank digital currency, or CBDC, and its issuance of a related discussion paper in January for public comment. The Fed’s project however poses a different ballgame than cryptos because a CBDC would change the U.S. monetary system, a highly controversial topic. Cryptos on the other hand focus on Bitcoin, Ethereum and other tokens that may or may not be utilized. But some people have been confusing both.
In May, the FASB added a project to its agenda to address the accounting for and disclosure of digital assets, but in August changed the project’s name to focus only on cryptocurrencies. Further, the board ruled that it will scope the guidance to address only fungible tokens, deemed to be intangible assets, secured by cryptography on a blockchain or distributed ledger, and do not provide the asset holder “with enforceable rights to or claims on underlying goods, services, or other assets.” (See New FASB Crypto Accounting Rules Will Tackle Certain Fungible Tokens Deemed ‘Intangible Assets’ in the Sept. 1, 2022, edition of Accounting & Compliance Alert.) The goal is to provide rules that better reflect the underlying economics of cryptos, enabling them to be reported at fair value so that both losses and gains can be recognized.
The guidance is being developed in light of huge growth of the crypto market which bounced to nearly $1.7 trillion in late February 2022 from $338 billion in late October 2020, according to the discussions. Specifically, 801 filers were identified that used crypto terms in their filings, compared with 104 filers in 2020, a FASB staff member told the boards.
Further, 515 distinct corporations and individuals filed disclosures about digital assets with the SEC between 2020 and 2022, compared to 74 filers in October 2020. “These actions generally suggest that the adoption of crypto assets by entities and individuals has expanded and is likely to continue to do so,” staff said.
On the contrary, the IASB’s research held different findings and in April the board voted against adding a project, stressing that cryptocurrencies are not being pervasively used by most of the 140 jurisdictions that use International Financial Reporting Standards (IFRSs). (See IASB Votes Against Project on Crypto, Moving Instead on Intangibles, Cash Flows, Climate Risk in the April 28, 2022, edition of ACA.)
A majority of the IASB said a project would still be too early, rules already exist under IFRS, and they do not want to get ahead of public policy about crypto as that is still unfolding.
“I think the area for us is really ‘is there a deficiency at the moment?’ and we’ve come to the conclusion ‘no there isn’t,’” IASB Chair Andreas Barckow said. “We also did the pervasiveness exercise and we know that obviously in some jurisdictions the issue is of growing importance or has become pervasive, but on a global scale so far it hasn’t,” he said.
Barckow said he was also mindful of what is happening in the regulatory space as the topic has been on “high alert” for the Financial Stability Board for the last three years. “So public policy is looking into this and the last thing I want to do is send out conflicting guidance with that – complementary of course is helpful but conflicting would be very, very dangerous,’ he said. “I realize – to Bertrand [Perrin]’s question – the remit of public policy is different to private policy but I think the two should obviously link up and should not be in conflict.”
The IASB plans to study crypto rules under its broader research projects including the one on intangibles, which the board plans to take up in two years.
“It might rightly fall into one of our two big projects,” said Barckow. “Because you could say this is an intangible asset for all the reasons you align in your paper, but it can also say it has areas of it’s like cash – it’s not fiat currency but it is used as if it was cash, it could be similar to cash, it’s electronic, it’s token whatever it is,” he said. “So I think that just shows we have to be clear as to what it is that we’re talking about and are all of these things meeting the same definition or not.”
This article originally appeared in the October 5, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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