On December 13, 2023, the Financial Accounting Standards Board (FASB) rolled out a groundbreaking update with Accounting Standards Update (ASU) 2023-08—Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60). This long-awaited update addresses the accounting and disclosure requirements for crypto assets, an area gaining prominence as cryptocurrencies and other digital assets become more significant in business and investment activities. This update brings major changes to how companies handle crypto assets like Bitcoin and Ethereum in their financial reports.

Why This Update Matters?

If your business holds crypto, this new standard directly impacts you. The goal is to provide investors and decision-makers with clearer information on the value of these digital assets while simplifying the accounting process. FASB aims to reduce the stress and costs associated with complex impairment rules, moving toward a more transparent approach that uses fair value.

The purpose of these amendments is to give investors and capital allocators more meaningful and relevant information, accurately reflecting the financial impact of crypto assets on an entity’s overall financial health. Additionally, the amendments aim to simplify the process by minimizing costs and complexities tied to the current cost-less-impairment accounting.

What Assets Are Covered?

Not all crypto is treated the same. This update is specifically for digital assets that meet these conditions.

1.  Are intangible assets (not physical like a car or a building)

2. Don’t provide the asset holder with enforceable rights or claims on underlying goods, services, or other assets

3.  Are created or reside on a distributed ledger based on blockchain or similar technology (like Bitcoin)

4.  Are secured through cryptography

5.   Are fungible

6.  Aren’t created or issued by the reporting entity or its related parties

This is huge for companies that hold cryptocurrency or any other blockchain-based assets.

When Does It Take Effect?

ASU 2023-08 is effective for all entities with fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. However, companies have the option for early adoption in both interim and annual financial statements that have not yet been issued. If a company decides to adopt the standard in an interim period, they must apply it as of the beginning of the fiscal year.

To transition to the new standard, companies will need to make a cumulative-effect adjustment to the opening balance of retained earnings (or other relevant equity components) at the start of the annual reporting period in which they adopt the new guidance.

This update is expected to impact industries where crypto assets are significant. By aligning the accounting for crypto assets with their fair value, the amendments provide clearer insight into the financial risks and opportunities posed by these assets.

What’s the Impact?

Investors, financial analysts, and capital allocators can now rely on more transparent reporting of crypto asset holdings. Entities will benefit from simplified accounting processes and reduced costs related to impairments. For organizations dealing with crypto assets, this update marks a significant step toward more accurate financial reporting and increased transparency in the rapidly evolving digital asset space.

The FASB’s ASU 2023-08 represents a key development in the accounting treatment of crypto assets, reflecting the growing importance of digital assets in the global economy. The move to fair value accounting, along with enhanced disclosure requirements, provides greater clarity and reliability in financial statements for entities holding crypto assets. As the effective date approaches, companies should prepare for these changes to ensure a smooth transition and compliance with the updated reporting standards.

Need Help?

With the rise of cryptocurrencies and digital assets, it is crucial for every organization to stay ahead of the curve. The recent Accounting Standards Update 2023-08 introduces significant changes in how we account for crypto assets, emphasizing the need for accurate reporting and disclosure.

If your organization holds crypto, there is no need to be alarmed. Navigating these changes can be tricky, but you don’t have to do it alone. At HWA Alliance of CPA Firms, Inc., we are here to help. Our experts are available to assist your nonprofit organizations with compliance strategies and tailored solutions to meet your unique needs. Contact us for more information and learn more about how we can support your organization in navigating this evolving landscape.

Accounting for and Disclosure of Crypto Assets (Completed Project Summary) (fasb.org)