The Financial Accounting Standards Board (FASB) recently proposed new accounting rules for measuring, presenting, and disclosing crypto assets in financial statements. If finalized, this proposal will create the first explicit accounting standard for crypto assets in US Generally Accepted Accounting Principles (GAAP).
The proposed rules apply to both well-known crypto assets like Bitcoin and Ethereum, which trade in active markets, as well as other types of crypto assets that do not trade as frequently or perhaps at all. The goal is to help companies accurately reflect the economics of these assets and provide investors with clear and transparent information about the fair value of crypto assets within financial statements.
One of the key requirements of the proposed rules is the measurement of crypto assets at fair value. Fair value represents the price that would be received if the company were to sell the crypto asset in an orderly transaction to a willing and knowledgeable buyer. Changes in the fair value of the asset would be recognized in each reporting period as profit or loss.
To provide investors with clear and transparent information, companies would present crypto assets separately from other intangible assets on the balance sheet. This approach would result in a prominent display of crypto assets, helping investors better understand their value and impact on a company's financial position.
In addition to presenting crypto assets separately, companies would also be required to disclose information about significant crypto holdings, restrictions, and changes in those holdings. For example, companies would need to disclose the number of tokens held, their fair value, and their cost basis for each significant crypto asset.
The proposal also includes an annual roll forward of crypto assets, showing purchases, sales, gains, and losses on a gross basis. While this information is intended to provide greater transparency, it may generate pushback from some companies concerned about the cost and effort involved in preparing the disclosures.
The proposed rules come at a time of heightened regulatory scrutiny in the crypto sector, with a series of scandals and bankruptcies raising concerns among regulators and investors alike. Despite these concerns, the crypto market has experienced significant growth in recent years, with Bitcoin and other tokens reaching all-time highs in 2021.
As the crypto market continues to evolve, there is a growing need for clear and transparent accounting rules to help companies accurately reflect the value of their holdings. The FASB proposal is a step in the right direction, providing a framework for measuring, presenting, and disclosing crypto assets in financial statements. With public comments due by June 6, it remains to be seen how the proposal will be received by the accounting community and whether it will ultimately be adopted as part of US GAAP.
