Following is a guest post from Renata K. Szkoda, CFO at INX and Co-Chairwoman of the Global Digital Asset and Crypto Currency Association.
The Financial Accounting Standards Board (FASB) reached a tentative decision to make fair market value (FMV) the primary accounting method for measuring crypto assets, reports the Global Digital Asset and Cryptocurrency Assn., which led the research effort.
The decision was reached after the U.S. FASB heard from a majority of stakeholders who favored a shift to fair value from the current practice that has generally been interpreted to mean that crypto assets should be impaired to the lowest observable fair value within a reporting period. When commenting on the decision, Board Member Christine Ann Botosan stated:
“Given how these assets generate huge cash flows and the type of cash flows they generate, I feel strongly that fair value is in fact the relevant measurement basis, it’s the right measurement basis, and it better captures the economics of this type of asset.”
On May 11, 2022, the FASB added a research project to its technical agenda to improve the accounting for and disclosure of digital assets, including one specific consideration, which is the measurement of digital assets at fair value.
Last week, the FASB made further progress related to this project by approving the staff’s recommendation on the scope of digital assets considered under this project. Digital assets to be included in further FASB staff consideration will include digital assets that meet the following five criteria:
- Meet the definition of an intangible asset as defined in the Accounting Standards Codification Master Glossary – assets (not including financial assets) that lack physical substance.
- Not meet the accounting definition of a contract as defined in the Master Glossary; an agreement between two or more parties that creates enforceable rights and obligations.
- Created or resides on a distributed ledger.
- Secured through cryptography.
- Must be fungible.
The FASB also agreed to refer to these assets as crypto assets and not digital assets.
This is a landmark piece of digital asset research that will help to clarify the valuation of digital assets across the industry. Notably, digital assets considered in the FASB project would capture the majority of digital assets currently accounted for at cost under US GAAP. It would also exclude certain stablecoins that are considered financial assets, CBDCs, digital securities, and NFTs.
It’s important to note that the effort is not completed yet, as FASB still needs to consider presentation and disclosure, but the fair value measurement covers the biggest challenge.
The research that went into the decision was led by the Global DCA Accounting & Taxation Working Group, from which this briefing is excerpted. The group is chaired by Premier Member Firm LUKKA under the guidance of Co-Chairwoman Suzanne Morsfield and Global DCA Member Firm INX under the guidance of Co-Chairwoman Renata Szkoda.