As cryptocurrencies and digital assets continue to gain traction in mainstream finance, regulatory bodies are stepping up to bring clarity and consistency to their treatment in financial statements. One of the most significant developments in this arena is the release of new accounting standards for crypto assets by the Financial Accounting Standards Board (FASB) . These changes mark a pivotal shift in how businesses and investors will report, analyze, and manage digital assets. 

Background: A Legacy of Ambiguity 

Until recently, accounting for crypto assets under Generally Accepted Accounting Principles (GAAP) was ambiguous. Most entities classify crypto assets, like Bitcoin or Ethereum, as indefinite-lived intangible assets. This meant they were subject to impairment testing, but not upward revaluation. If the market value dropped, the asset was written down; however, even if the value recovered later, companies couldn’t write it back up. This led to financial statements that often didn’t reflect the true economic value of these assets. 

The New Standard: What’s Changed? 

In December 2023, the FASB issued ASU 2023-08, a new accounting update that overhauls how companies account for and disclose certain crypto assets. Here are the key features: 

1. Fair Value Measurement 

The most significant change is that qualifying crypto assets must now be measured at fair value with changes recorded in net income. This brings crypto accounting in line with the treatment of other financial instruments like stocks or bonds. 

Under the new guidance, companies must revalue their crypto holdings each reporting period based on current market prices. Gains and losses will now flow through the income statement, providing more timely and relevant information to investors. 

2. Expanded Disclosures 

The FASB is also requiring more detailed disclosures, including 

• The cost basis and fair value of crypto assets are held at the end of each reporting period. 

• Gains and losses from crypto holdings, separated from other income. 

• Information about significant crypto transactions during the period. 

These disclosures are intended to improve transparency and give users of financial statements a clearer view of how crypto assets impact a company’s performance and financial position. 

3. Scope of Applicability 

The new rules do not apply to all digital assets. Instead, they specifically cover crypto assets that meet certain criteria: they must be fungible, exist on a blockchain or similar distributed ledger technology, not be issued by the reporting entity or its affiliates, and not fall under existing accounting guidance for securities or other financial assets. This means commonly traded cryptocurrencies like Bitcoin and Ethereum are within scope, while assets such as NFTs, tokenized securities, and internally issued tokens may be excluded. 

This means tokens like Bitcoin and Ethereum are included, but NFTs (non-fungible tokens), tokenized securities, and some stablecoins may fall outside the scope for now. 

Implications for Businesses 

The shift to fair value accounting is a major win for transparency but also brings new challenges: 

Volatility in Earnings:  

Because crypto prices are notoriously volatile, companies could see increased fluctuations in reported earnings. While more reflective of reality, this could introduce unpredictability in quarterly reports. 

Improved Investor Confidence: 

 Investors will benefit from more accurate and timely information, enabling better decision-making and risk assessment. 

System and Process Upgrades:  

Companies may need to invest in new systems for real-time asset valuation and integrate crypto tracking into their broader financial infrastructure. 

Audit Considerations: 

 Auditors will now need to verify fair value measurements, which may increase the complexity and cost of audits for crypto-heavy firms. 

Global Harmonization on the Horizon? 

While the FASB’s move is a significant step forward in the U.S., international standards are still evolving. The International Financial Reporting Standards (IFRS) currently do not mandate fair value accounting for crypto assets, though discussions are ongoing. A unified global approach would further simplify cross-border reporting and boost investor confidence in the digital asset space. 

Bottom Line 

ASU 2023-08 establishes a clear and standardized framework for accounting for cryptocurrency assets, designed to improve transparency, consistency, and comparability in financial reporting. Organizations engaged in digital asset transactions should begin preparing for significant changes in measurement, presentation, and disclosure requirements to ensure compliance by the effective date. 

Is your organization ready to meet the new standards? Connect with Corpin Consultant’s advisory team today to align your accounting practices with ASU 2023-08 and stay ahead of regulatory changes.