The FASB has issued an Exposure Draft for public comment that is intended to improve the accounting guidance and disclosure of certain crypto assets.

Under current GAAP, with the exception of certain industry-specific guidance, entities are required to account for crypto asset holdings as indefinite-lived assets that are tested for impairment at least annually and an impairment loss is recorded if the fair value of the crypto asset is less than the carrying value. However, subsequent increases in the carrying value or reversal of impairment charges are prohibited. Investors and stakeholders have noted that reflecting only the decreases in value, but not the increases, does not provide decision-useful information that reflects the underlying economics of these assets.

The Exposure Draft would apply to crypto asset holdings that meet the following criteria:

1. Meet the definition of an intangible asset as defined in US GAAP
2. Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services or other assets
3. Are created or reside on a distributed ledger based on blockchain technology
4. Are secured through cryptography
5. Are fungible
6. Are not created or issued by the reporting entity or its related parties

If the crypto asset holdings meet the above criteria, an entity would be required to measure the crypto assets at fair value with changes recognized in net income for each reporting period. Any transaction costs incurred to acquire such assets would be expensed as incurred, unless industry-specific guidance requires that the entity capitalize those costs.

Furthermore, the Exposure Draft would require entities to separately present the crypto assets measured at fair value separately from other intangibles on the balance sheet and to present the changes in fair value separately from changes in the carrying amounts of other intangible assets in the income statement.

For annual and interim reporting periods, entities would be required to disclose the following information:

1. The name, cost basis, fair value, and number of units for each significant crypto asset holding and the aggregate fair values and cost bases of the crypto asset holdings that are not individually significant
2. For crypto assets subject to restrictions, the fair value of those crypto assets, the nature and remaining duration of the restrictions, and the circumstances that cause the restrictions to lapse

In addition, for annual reporting periods, entities would be required to disclose the following information:

1. A rollforward, in the aggregate, of activity in the reporting period for crypto asset holdings, including additions (with a description of the activity that resulted in the additions), dispositions, gains and losses. If not separately disclosed on the income statement, entities would also be required to disclose the income statement line item in which those gains and losses are recognized.
2. For any dispositions of crypto assets in the reporting period, the difference between the sale price and the cost basis and a description of the activities that resulted in dispositions.
3. The method for determining the cost basis of the crypto assets.

The Exposure Draft would be accounted for as a cumulative-effect adjustment to retained earnings as of the beginning of the annual reporting period in which an entity adopts the ASU upon issuance. Early adoption would be permitted in any interim or annual period for which an entity’s financial statements have not been issued or made available for issuance and would be accounted for as of the beginning of the annual reporting period of adoption.

The FASB has invited stakeholders to provide their comments on specific questions by June 6, 2023, when the comment period will end. The effective date of the amendment will be determined after the FASB considers the feedback received.

The full text of the Exposure Draft is available here.