Crypto Asset Accounting Guidance Issued

In December 2023, the FASB issued ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which is effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years.

Improves Current Accounting for Certain Crypto Assets

Current accounting generally treats holdings of crypto assets as indefinite-lived intangible assets using a cost minus impairment model. In other words, this approach only measures the decreases in the value of crypto assets, but not the increases in their value until the nonprofit organization sells the assets. Some investors, lenders, creditors, and others complained that the accounting didn’t represent the underlying economics of crypto assets.

The new standard adds a new Subtopic 350-60, Intangibles—Goodwill and Other—Crypto Assets, to the FASB Accounting Standards Codification that addresses the subsequent measurement, presentation, and disclosure for applicable crypto assets. FASB ASC 350-60 notes that the initial measurement, recognition, and derecognition of crypto assets should be accounted for following other GAAP.

The amendments in the ASU improve current accounting for crypto assets by requiring their subsequent measurement at fair value in the statement of financial position with gains and losses from remeasurement included in the change in net assets.

Qualifying Crypto Assets

The new FASB ASC 350-60 applies to fungible asset holdings that aren’t created or issued by the reporting entity and its related parties and meet the following additional conditions:

Qualify as an intangible asset as defined in the FASB ASC.
Don’t provide enforceable rights to or claims on underlying goods, services, or other assets.
Must be created or reside on a distributed ledger based on blockchain or similar technology.
Must be secured through cryptography.

Presentation and Disclosure Requirements

The new FASB ASC 350-60 requires that nonprofit organizations present crypto assets separately from other intangible assets in the statement of financial position. Also, the statement of activities should present remeasurement gains and losses separately from changes in the carrying amount of other intangible assets.

Cash receipts from contributions of crypto assets that the organization converts nearly immediately to cash should be classified as operating cash flows on the statement of cash flows unless the donor restricted the use of the contribution to a long-term purpose. In that case, the cash receipts would be classified as financing cash flows on the statement of cash flows.

Practical Consideration: The ASU notes that nearly immediately means hours or a few days, not weeks.

Furthermore, the ASU requires several disclosures pertaining to crypto assets. For annual and interim reporting periods, disclose:

The name, cost, fair value, and number of units held for each significant holding.
The aggregate cost basis and fair value for holdings that aren’t individually significant.
For crypto assets subject to contractual sale restrictions, the fair value of those assets, along with their nature, the remaining duration of restrictions, and the circumstances that may cause the restrictions to lapse.

For annual reporting periods, disclose:

A reconciliation of the aggregate activity of opening to closing balances of crypto assets. This includes additions, dispositions, gains included in the change in net assets for the period, and losses included in the change in net assets for the period.
A description of the nature of activities that result in additions and those that result in dispositions.
Cumulative realized gains and losses for dispositions during the period.
The method used to determine the cost basis for gains and losses.
The line item where gains and losses are reported in the statement of activities, if not presented separately.