New FASB guidance on accounting for crypto assets | Deloitte US has been saved
By PJ Theisen, Audit & Assurance Partner, Deloitte & Touche LLP
Talking points
- The Financial Accounting Standards Board (FASB) has finalized new guidance that will transform GAAP accounting for certain crypto assets.
- The FASB Accounting Standard Update (ASU), which will require fair value subsequent measurement for certain crypto assets, will bring greater transparency to the accounting for those crypto assets.
- Deloitte can provide guidance to finance, treasury, and accounting teams on how to prepare for the new crypto asset accounting rules.
The crypto asset class has shown surprising resilience over the past year, despite significant market volatility and turbulence.1 By 2024, an estimated 26 million US investors will own crypto, according to a 2023 market forecast.2 However, crypto investing by institutions and public companies remains remarkably low.3 Just 39 publicly traded companies (19 in the United States) have bitcoin holdings, holdings which represent only 1% of the bitcoin supply.4 A newly issued FASB ASU 2023-08 that will require subsequent accounting at fair value for certain crypto assets may increase the appeal of crypto assets among institutional investors.
What it does
Previous accounting for crypto assets required impairment losses for decreases in fair value but prohibited “writing up” crypto assets and recognizing gains for increases in fair value. This treatment prevented certain institutional investors from investing in the asset class. We expect the new standard to make investing in certain crypto assets more appealing to entities that prepare GAAP financial statements, given the accounting will better reflect the underlying economics of the crypto investments.
Calendar year-end companies will have one year after the final rules are released to prepare to implement them for fiscal years beginning after December 15, 2024. However, a company can voluntarily early adopt the new guidance in any interim or annual period for which financial statements have not been issued (such adoption is required to be reflected as of the beginning of the fiscal year).
Expected impact and benefits
Among the welcome benefits the new ASU is expected to bring are:
Increased transparency: Implementing the ASU enhances transparency in financial reporting. Investors and stakeholders gain a more accurate picture of a company’s financial health when its crypto assets are measured at fair value.
Better communication with stakeholders: New disclosures introduced by the ASU will allow companies to better communicate their crypto asset performance and holdings to investors and stakeholders.
Potential early adoption benefits: Companies that choose to adopt the ASU for 2023 or 2024 have the advantage of being able to remeasure their crypto assets at fair value, with increases in fair value recognized as gains in their financial statements. This may be appealing if crypto holdings have appreciated in value.
We expect the new standard to make investing in certain crypto assets more appealing to entities that prepare US GAAP financial statements, given that the accounting will better reflect the underlying economics of the crypto investments.
— PJ Theisen, Audit & Assurance Partner, Deloitte & Touche LLP
Let’s not forget the challenges
Naturally, there will be challenges that must be managed, including:
Fair value determination: Accurately determining the fair value of crypto assets can be tricky. Crypto assets often trade on various exchanges, each with its own market dynamics, and some crypto assets within scope of the standard may be thinly traded or not traded in active markets. Determining the principal market and calculating fair value can be complex.
Complexity in scoping: The ASU has a relatively narrow scope. While many crypto assets may clearly be in scope of the standard, there are many other types of tokens and assets for which a determination on scope may be challenging.
Disclosure requirements: New disclosure requirements are both a benefit and a challenge. Gathering and reporting the required information, such as information related to acquisitions, disposals, and gains and losses recognized on sales of crypto assets, may require new systems and processes.
Early adoption considerations: Companies considering early adoption for 2023 must carefully assess whether they have the data required to apply the fair value model as of the beginning of the fiscal year of adoption. Re-creating this data can be burdensome.
What role can Deloitte play?
Deloitte can provide advice as you digest the ASU guidance and decide how and when to implement it. To learn more, read our Heads up | Volume 30, Issue 24 issued on December 15, 2023. You can also download Deloitte’s thought leadership piece, “The use of cryptocurrency in business,“ for further reading.
Feel free to reach out to me, PJ Theisen, with any questions.
Endnotes
1 Meaghan Yuen, “Cryptocurrency: What is it and how it benefits banking and finance,“ Insider Intelligence, October 18, 2023.
2 Ibid.
3 Finoa, “Crypto adoption among retail and institutional investors in 2022,“ December 16, 2022.
4 Ibid.
Get in touch
PJ Theisen
Accounting Services | Deloitte & Touche LLP
PJ Theisen is an Audit & Assurance Partner in Deloitte’s National Office Accounting and Reporting Services Group specializing in technical accounting matters in the areas of financial instruments, revenue recognition, and accounting for digital asset transactions under US GAAP and IFRS. Also, he serves companies in both an advisory and audit capacity that operate in the blockchain, technology, and life science industries, with a focus on accounting and financial reporting. He is also involved in monitoring standard setting by the FASB and other regulators and developing related thoughtware. He previously served as a Professional Accounting Fellow in the SEC’s Office of the Chief Accountant, consulting with SEC registrants and other offices and divisions within the SEC and liaising with standard setting bodies and other regulators both in the US and abroad. PJ received a BA in accounting and finance from the University of St. Thomas, Opus College of Business. He is a Certified Public Accountant in Washington, D.C. and Minnesota.
