Does your company hold or transact with crypto assets? If so, chances are you have encountered the complexities of accounting for and disclosing the nature of these assets. Since cryptocurrencies are such a novel asset class, it is no wonder the Financial Accounting Standards Board (FASB) has had to be dynamic in its approach to accounting guidance for companies, resulting in sometimes burdensome practices for financial staff of any company that holds the assets.
However, with the issuance of Accounting Standards Update (ASU) 2023-08, Intangibles—Goodwill and Other—Crypto Assets, companies holding crypto assets should notice a lesser burden in staying compliant with accounting for cryptocurrency.
Until now, crypto assets held by most entities, with the exception of certain specialized industries, such as investment funds, have been classified as indefinite-lived intangible assets. As such, they are recorded on the balance sheet at their original cost and subsequently written down if there are indicators of impairment in the asset’s value. But this accounting classification does not allow for the potential of the asset to be written back up if the value of the crypto were to subsequently increase.
As a result, this accounting model does not necessarily provide holders with the most applicable information to make decisions based on the economics of the assets and the company’s current financial position at any given point in time.
As a result of feedback received in recent years, FASB recently released ASU 2023-08 to improve the accounting for and disclosure of crypto assets. This amended guidance requires companies to measure these assets at fair value as of each reporting period. The increase or decrease in fair value from period to period will be reflected in the income statement. Additionally, this update requires expanded footnote disclosures to provide financial statement users with information about significant crypto holdings and changes that occurred during the reporting period.
Removing the need to track original cost basis of every crypto transaction, as well as the requirement to test for impairment on a regular basis, should significantly reduce the effort and complexity of accounting for cryptocurrency.
ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, but early adoption is permissible for any financial statements that have not yet been issued. If the company held crypto assets at the beginning of the year of adoption, that were previously held at cost less any impairment, the assets would be adjusted to fair value and the resulting difference would be an adjustment to opening retained earnings.
Contact Kaitlin Mansfield at kmansfield@cohenco.com or a member of your service team to discuss this topic further.
Cohen & Co is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.