1. The Accounting Standards Codification is amended as described in paragraphs 2–13. Terms from the Master Glossary are in bold type. Added text is underlined, and deleted text is

struck out

.

BC1. The following summarizes the Board’s considerations in reaching the conclusions in this Update. It includes reasons for accepting certain approaches and rejecting others. Individual Board members gave greater weight to some factors than to others.

BC2. Before adding this project to its agenda, the Board directed the staff to conduct research and monitor developments in the accounting for and reporting of crypto assets. That research focused on whether there was a pervasive need to improve financial reporting, whether feasible solutions existed, and whether a scope for the project could be established. The staff performed pre-agenda research with stakeholders and monitored the development of U.S. accounting practice and the application of both existing authoritative and nonauthoritative guidance and guidance in other jurisdictions. The Board also considered multiple agenda requests that highlighted concern that the current accounting for crypto assets as indefinite-lived intangible assets does not reflect the economic nature of those assets because of the historical-cost-less-impairment accounting model that applies to their subsequent measurement.

BC3. Stakeholders’ feedback, including respondents to the 2021 FASB Invitation to Comment (ITC), Agenda Consultation, indicated that improving the accounting for and disclosure of crypto assets should be a top priority for the Board. Nearly 500 respondents to the 2021 ITC requested that the Board add to its agenda a project related to crypto assets. Although some stakeholders made observations about other aspects of the accounting for crypto assets and related transactions, stakeholders indicated that the current accounting for crypto assets under a cost-less-impairment accounting model does not provide investors, lenders, creditors, and other allocators of capital (collectively, “investors”) with decision-useful information. Specifically, those stakeholders noted that reflecting only the decreases but not the increases in the value of crypto assets in the financial statements until they are sold does not reflect (a) the underlying economics of those assets and (b) an entity’s financial position. Investors also requested additional disclosures about the types of crypto assets held by entities and changes in those holdings.

BC4. Some stakeholders requested that the Board add a project on crypto assets to its agenda because measuring crypto assets at historical cost less impairment created a barrier to acceptance of crypto assets. The Board did not give any weight to this feedback as a rationale for adding this project to its agenda or in making decisions. Rather, the Board acknowledged the need to (a) improve the accounting for crypto assets in order to provide investors with more decision-useful financial information and (b) reduce complexity related to the application of the current accounting to crypto assets.

BC5. Throughout this project, the Board and staff conducted substantial outreach with investors, preparers, practitioners, regulators, industry groups, and others to obtain their views about key considerations in this project. Those stakeholders provided input about how investors would use that information and the expected cost and operability of the Board’s decisions. Those outreach activities included more than 180 interactions with stakeholders in groups or one-on-one meetings.

BC6. Many stakeholders indicated that applying the current accounting to crypto assets is unnecessarily complex and costly. Some crypto assets are frequently traded, which is not typical for most intangible assets. For indefinite-lived intangible assets, entities are required to test for impairment annually and more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. For crypto assets, this process results in reporting entities considering price and other information throughout the reporting period. In addition, reporting entities often voluntarily provide their investors with fair value or price information as of the end of their reporting period.

BC7. The Board issued proposed Accounting Standards Update, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, for public comment on March 23, 2023, and received 83 comment letters in response to the amendments in that proposed Update. Overall, comment letter respondents supported the proposed amendments and the project’s objectives. While nearly all respondents expressed broad support for the proposed scope, measurement, presentation, and disclosure requirements, some respondents suggested clarifications and other potential improvements. The Board considered stakeholders’ feedback received throughout the course of this project and respondents’ comments in reaching its conclusions in this Update, as discussed further below.

BC8. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, donors, and other allocators of capital benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. The Board’s assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the value of improved information in financial statements.

BC9. On the basis of stakeholders’ substantial input, the Board concluded that applying the amendments in this Update provides investors with more decision-useful information than current GAAP. In particular, the amendments improve the accounting for crypto assets by requiring that all changes in fair value be recognized in net income, which will provide investors with greater transparency about an entity’s holdings of crypto assets. The Board observed that the current accounting, which reflects only decreases but not increases in the value of crypto assets in an entity’s financial statements until those assets are sold, does not reflect the underlying economics of those assets and does not provide decision-useful information about future cash flows that may be generated by those assets.

BC10. In addition, reporting crypto assets at fair value aligns the accounting required for all holders of crypto assets with the accounting required for entities that follow certain industry-specific guidance (such as investment companies within the scope of Topic 946, Financial Services—Investment Companies) and eliminates the requirement for those entities to test crypto assets for impairment, reducing the cost and complexity of applying the current guidance. The amendments in this Update also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about the types of and changes in holdings of crypto assets.

BC11. When making its decisions, the Board considered the benefits and costs of specific requirements, as well as the overall benefits and costs of the amendments in this Update. The Board noted that there may be incremental costs of applying some provisions of the amendments that may offset the reductions in costs that will result from no longer applying the existing requirements. The costs of applying the amendments will vary depending on several factors, including whether an entity is currently determining the fair value measurement of crypto assets for voluntary reporting or other purposes and whether the entity’s existing systems can track costs, impairments, and changes in a crypto asset’s value. For example, some stakeholders indicated that measuring crypto assets without quoted prices in active markets at fair value could result in incremental costs and challenges. However, research and outreach conducted with other stakeholders indicated that those costs and challenges could be present in applying the current cost-less-impairment accounting model. Furthermore, nearly all comment letter respondents stated that measuring crypto assets at fair value would not be costly or complex.

BC12. The Board also acknowledged that the amendments in this Update could introduce additional costs for preparers to comply with those requirements. In particular, comment letter respondents mentioned costs related to the cost basis and historical realized gain and loss disclosures. However, most comment letter respondents as well as other research and outreach conducted with stakeholders indicated that the costs of preparing and providing the required disclosures are not expected to be significant. Overall, the Board decided that the expected benefits of the amendments justify the expected costs.

BC13. In developing the scope criteria, the Board sought to leverage existing guidance and provide a solution that would clearly describe and address the population of crypto assets whose accounting, according to most stakeholders, should be improved. The Board considered the definition of and current accounting for certain assets, including intangible assets, securities, and other financial assets, to determine whether, and to what extent, those existing definitions (or aspects of them) should be leveraged. The Board also considered key characteristics of crypto assets that differentiate them from other assets and the fungibility and marketability of crypto assets.

The Board acknowledged that the criteria result in a relatively narrow, but in the Board’s view, appropriately defined scope, given the wide range of digital and other assets.

BC14. The Board decided that assets that meet all of the following criteria are subject to the amendments in this Update:

BC15. The Board determined that crypto assets created or issued by a reporting entity or its related parties should be excluded from the scope of the amendments in this Update. The Board observed that stakeholders did not ask that the Board address an issuer’s accounting. In addition, many issuers and others did not support measuring crypto assets created or issued by a reporting entity or its related parties at fair value.

BC16. While many comment letter respondents agreed with the Board’s decision to exclude crypto assets created or issued by a reporting entity or its related parties, some respondents requested that the Board address the accounting for issuers of crypto assets in a future project. Others noted that fair value measurement may become relevant for crypto assets created and held by an issuer when the issuer’s involvement with the crypto assets diminishes over time. The Board affirmed its decision to exclude the accounting for crypto assets created or issued by the reporting entity because stakeholders broadly agreed that the need to address the issuer’s accounting is less pervasive and addressing the accounting for issuers of crypto assets would expand the scope of the project.

BC17. Some stakeholders questioned whether a reporting entity that mines crypto assets would be excluded from the scope of the amendments in this Update. The Board clarified that a reporting entity that mines or validates and receives newly created crypto assets is not the creator of the crypto assets that it receives as consideration for performing services if mining or validating is the only involvement that an entity has in the creation of the asset.

BC18. The Board observed that the definition of intangible assets generally includes the types of crypto assets that stakeholders stated needed improvements in accounting. That definition specifically excludes financial assets. Therefore, fiat currency and many securities are excluded and should be accounted for under other GAAP. The Board also observed that there are multiple definitions of security and that certain assets that are considered securities for regulatory purposes may not be considered securities as defined in the Master Glossary.

BC19. The Board included a scope criterion that excludes crypto assets that provide the holder with enforceable rights to or claims on underlying goods, services, or other assets. Without that criterion, some Board members observed that the accounting for certain arrangements—such as contracts with customers, guarantees, and insurance contracts—inadvertently could be included within the scope of the amendments in this Update. Those arrangements, which may be in digital form, should continue to be subject to other GAAP.

BC20. Some respondents to the proposed Update requested that the Board clarify the meaning of the term enforceable and whether a legal opinion would be necessary. The Board observed that the notion of an enforceable right is used throughout GAAP and agreed with respondents who observed that determining whether there are enforceable rights may require judgment. Furthermore, the Board noted that in many, but not necessarily all, cases it will be clear whether a crypto asset provides an asset holder with enforceable rights to underlying goods, services, or other assets.

BC21. The Board observed that crypto assets may provide an asset holder with rights to other crypto assets and, therefore, are outside the scope of the amendments in this Update. In deciding to include this scope criterion in the proposed Update, the Board expressed concern that broadening the scope to include crypto assets that provide rights to other crypto assets was not identified as pervasive and expanding the scope to include crypto assets that derive value principally by providing rights to other assets could have consequences that have not been fully evaluated. Respondents broadly supported the proposed scope, partly because a narrower scope would allow the Board to finalize the amendments in this Update in a timely manner. More than a quarter of the respondents requested that the scope include assets that provide rights to other crypto assets. The Board considered the feedback and, for reasons similar to those described above, affirmed the criterion as proposed.

BC22. The scope criteria also include certain characteristics of crypto assets that differentiate them from other assets, that is, they are created, or reside on, a distributed ledger based on blockchain or similar technology and are secured through cryptography. The Board decided that including those characteristics within the scope criteria will prevent other digital intangible assets, such as software and media, from being included within the scope of the amendments in this Update. In addition, on the basis of outreach and comment letter feedback, the Board sought to describe the technological form of those assets within the scope criteria while also providing flexibility because of the continued evolution in the technology underlying crypto assets. The Board considered but ultimately decided not to specify that the distributed ledger should be public because determining the meaning of public in this context would require judgment and may be complex.

BC23. The Board decided to include fungibility as a criterion because obtaining market prices for items that are not fungible could be costly and complex and fair value measurement may not be relevant for nonfungible items. The fungibility criterion excludes nonfungible tokens (NFTs) from the amendments in this Update. Investors indicated that they do not observe reporting entities holding material amounts of NFTs at this time and that if they were to observe those holdings, the reported value may not affect their analyses or capital allocation decisions because of the nature of those assets and the uncertainty surrounding their value. Many respondents supported the proposed scope criterion. Excluding NFTs from the scope of the amendments also is consistent with the feedback received from many respondents to the ITC that favored a narrow-scope project.

BC24. In developing the scope criteria for the amendments in this Update, the Board acknowledged that other characteristics, such as “medium of exchange” and “store of value,” are used by others when describing or defining crypto assets. The Board did not include those characteristics because (a) other assets, such as fiat currency, may share those characteristics and (b) evaluating whether those characteristics exist for financial reporting purposes may be subjective. Therefore, including those characteristics within the scope criteria could have increased the cost and complexity of an entity’s assessment of whether an asset is within the scope of the amendments.

BC25. The Board also considered whether to exclude crypto assets without an active market from the amendments in this Update. The Board ultimately dismissed that alternative, however, because (a) that criterion could have resulted in complexity because, for example, a crypto asset could be moved within and outside the scope based on changes in the market activity for that asset, (b) if those assets were excluded from the amendments, the presentation and disclosure requirements would not have applied to those assets, (c) the existence of an active market is considered part of the fair value measurement of crypto assets in accordance with Topic 820, Fair Value Measurement, and (d) the impairment testing guidance still requires that an entity determine fair value for the purpose of recognizing any potential impairment loss. Almost all respondents agreed with the Board’s decision, which did not exclude crypto assets without an active market.

BC26. The accounting for intangible assets applies broadly to public business entities, private companies, not-for-profit entities, and employee benefit plans. Stakeholders stated that applying current guidance to crypto assets is costly and complex and is not consistent with the underlying economics of those assets. Therefore, Board members agreed that improving the accounting, presentation, and disclosures for crypto assets that meet the scope criteria benefits all entities. Comment letter respondents supported the broad application of the amendments in this Update for all entities.

BC27. Although industry-specific guidance, such as guidance for investment companies, currently permits or requires accounting for crypto assets at fair value, the Board decided that it is beneficial to include those entities within the scope of the amendments in this Update primarily because investors will benefit from enhanced disclosures. Subtopic 946-205, Financial Services—Investment Companies—Presentation of Financial Statements, requires presentation of a statement of net assets, which includes a schedule detailing an entity’s investments on a more disaggregated basis, and provides guidance on the presentation of changes in the fair value of investments in an investment company’s statement of operations. The Board decided that investment companies should continue to present amounts related to crypto assets in their financial statements in accordance with that industry-specific guidance.

BC28. The Board also considered the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies, and consulted the Private Company Council to determine whether exceptions or practical expedients related to measurement, presentation, and disclosure were needed. The Board did not receive feedback from private company investors indicating that they have different informational needs related to crypto assets. Furthermore, on the basis of stakeholders’ feedback received, including support from the investors on the Private Company Council, the Board decided that private company investors generally will benefit from having more relevant information about crypto assets. The amendments in this Update also are expected to reduce the cost and complexity for some entities. Therefore, the Board decided not to include any exceptions or practical expedients for private companies.

BC29. The amendments in this Update require that an entity subsequently measure crypto assets at fair value at each reporting period. The Board decided to require fair value measurement because it will provide investors with more decision-useful information about the value at which crypto assets can be sold and about changes in that value. In reaching that conclusion, the Board observed that the predominant way that an entity realizes value from a crypto asset that meets the scope criteria is through exchange and crypto assets are not used in combination with any other assets to generate value. The fair value measurement guidance in Topic 820 also is well understood in practice and familiar to many investors because it is used to measure other assets. Nearly all comment letter respondents and other stakeholders, including those who responded to the ITC, supported requiring that entities measure crypto assets at fair value for similar reasons.

BC30. Before the issuance of the proposed Update, the Board considered and dismissed two other measurement alternatives—historical cost with modified impairment (which would have required that an entity test crypto assets for impairment only as of the end of the reporting period) and net realizable value—on the basis that, among other reasons, the alternatives would have provided investors with less relevant information. That is because the historical-cost-with-modified-impairment alternative would have prohibited the recognition of increases in price movement and the net-realizable-value alternative would have introduced a new measurement basis for crypto assets that would have created measurement differences between entities. Two respondents to the proposed Update recommended measurement alternatives, one of which would have been to provide an option to use the current cost-less-impairment accounting model for measuring some or all of an entity’s crypto asset holdings. The Board did not support providing entities with an option, as opposed to a requirement, to subsequently measure crypto assets at fair value because it would have diminished comparability between similar entities and similar assets, would have resulted in additional effort for investors to understand an entity’s measurement policies and evaluate the entity’s financial results, and likely would not have reduced costs or complexity for preparers.

BC31. The Board also considered whether the guidance in Topic 820 provides a sufficient basis for entities to measure the fair value of crypto assets. Specifically, the Board observed that Topic 820 provides guidance on:

BC32. While judgment may be required in evaluating those aspects of Topic 820 when measuring the fair value of crypto assets, an evaluation of those aspects involving judgment also is required when measuring other assets in accordance with Topic 820. Therefore, the Board decided that the existing guidance in Topic 820 is sufficient. Additionally, the Board acknowledged that reporting entities currently apply the fair value measurement principles in Topic 820 when determining impairments under the cost-less-impairment accounting model and when following industry-specific guidance that requires or allows fair value measurement for crypto assets. Although a few comment letter respondents suggested that the Board either provide additional measurement guidance or clarify the application of certain aspects of Topic 820 to crypto assets, almost all respondents indicated that Topic 820 is operable and sufficient for measuring the fair value of crypto assets within the scope of the amendments in this Update.

BC33. The Board proposed that transaction costs to acquire crypto assets, such as commissions and other related transaction fees, should be expensed as incurred unless an entity capitalizes those costs in accordance with industry-specific guidance (for example, investment companies within the scope of Topic 946). A majority of the Board supported the proposal to expense transaction costs because it would (a) provide investors with greater visibility into gains and losses that arise because of price changes in an entity’s crypto asset holdings and (b) eliminate the potential for diversity in practice.

BC34. While a majority of comment letter respondents supported the Board’s proposal to expense transaction costs as incurred, some respondents stated that expensing transaction costs would not align with other areas of GAAP that either require that an entity capitalize transaction costs or do not provide guidance on the accounting for transaction costs. Some respondents preferred capitalizing transaction costs because including those costs in the gains and losses from holding a crypto asset would better reflect the performance of that holding and a few of those respondents noted that it would align with industry-specific guidance for investment companies. Other respondents either (a) supported an option that would allow entities to either capitalize or expense transaction costs or (b) stated that it is unnecessary for the Board to provide guidance on the accounting for transaction costs for crypto assets.

BC35. In considering the comment letter feedback, the Board acknowledged that requiring transaction costs to be expensed as incurred may not provide investors with decision-useful information because the amendments in this Update do not require separate presentation or disclosure of those costs. Additionally, the Board observed that, regardless of whether transaction costs are capitalized or expensed, the effect on comprehensive income in the period that crypto assets are acquired is the same because those crypto assets are required to be remeasured to fair value.

BC36. Therefore, the Board decided not to provide guidance on how to recognize or present transaction costs to acquire crypto assets. In addition, the amendments in this Update do not amend industry-specific guidance for an entity that is required to capitalize transaction costs.

BC37. While almost all ITC respondents and other stakeholders supported fair value measurement, some stakeholders raised concerns about whether fair value is an appropriate measurement basis for crypto assets that do not have a quoted price in an active market. One concern noted was that the techniques and inputs used to value crypto assets using a market approach may be unreliable, which could result in financial information that lacks relevance. Additionally, because of the largely unregulated nature of crypto asset markets, certain transactions that are not orderly (for example, wash trades that are intended to manipulate prices) may appear as orderly transactions and could distort an entity’s fair value measurement. Therefore, those stakeholders suggested that the Board preclude fair value measurement of crypto assets without existing active markets.

BC38. Other stakeholders expressed different views on applying the valuation techniques described in Topic 820. Some observed that the economic benefits provided to the holders of crypto assets are realized through the exchange of those assets. Therefore, those stakeholders indicated that it would be rare to apply any valuation technique other than a market approach based on observed transactions or market quotes when measuring a crypto asset’s fair value. Certain stakeholders also suggested that when there is no quoted market price in an active market, the appropriate measure would be zero. Other stakeholders disagreed with that view but acknowledged that the fair value measurement of a crypto asset with no quoted market price in an active market may be a minimal or immaterial amount. Board members agreed that the application of the guidance in Topic 820 may result in a fair value for those crypto assets that is minimal or zero.

BC39. Before the issuance of the proposed Update, the Board considered three measurement alternatives for crypto assets without quoted prices in active markets:

BC40. The Board rejected those measurement alternatives for several reasons. Topic 820 specifically addresses the broadly applicable requirements for measuring the fair value of assets and liabilities without quoted prices in active markets. Additionally, entities that apply the current cost-less-impairment accounting model are required to determine the fair value of all crypto assets, including those without quoted prices in active markets, to evaluate those assets for impairment. Entities that follow certain industry-specific guidance (for example, investment companies within the scope of Topic 946) measure crypto assets at fair value, regardless of whether there are quoted prices in an active market for those assets. Furthermore, unless there is a requirement to measure those assets at zero, an entity is still required to determine the fair value for impairment purposes.

BC41. Almost all comment letter respondents supported the Board’s decision not to provide measurement alternatives for crypto assets without quoted prices in active markets. The few respondents that disagreed recommended measurement alternatives that are similar to those that the Board considered and rejected. Additionally, there was no clear consensus among respondents on how they would describe or define an inactive market for crypto assets. Therefore, the amendments in this Update do not provide any measurement alternatives for crypto assets without a quoted price in an active market.

BC42. Reporting entities currently are required, at a minimum, to present all intangible assets as a separate line item in the balance sheet. The amendments in this Update require that an entity present crypto assets measured at fair value separately from intangible assets measured at historical cost less amortization and impairment. The Board decided that crypto assets should be presented separately from other intangible assets because they are measured and generate benefits differently from other intangible assets. Additionally, separately presenting crypto assets better responds to investors’ requests that information about crypto assets should be transparently displayed in the financial statements.

BC43. Nearly all comment letter respondents supported separate presentation of crypto assets measured at fair value from intangible assets measured at historical cost less amortization and impairment. One comment letter respondent requested that the Board provide presentation guidance for the classification of crypto assets as either current or noncurrent in a classified balance sheet. However, the Board decided not to provide incremental presentation guidance for crypto assets because Topic 210, Balance Sheet, provides adequate guidance for determining the balance sheet classification of assets.

BC44. The amendments in this Update require that an entity include all changes from the remeasurement of crypto assets in net income. The Board decided that reflecting the periodic changes in net income, combined with additional disclosures about an entity’s crypto assets at each balance sheet date, provides investors with relevant information about how management is generating value from its crypto asset positions over time. Outreach also indicated that most stakeholders favor aligning the accounting for crypto assets with the accounting for investments in equity securities because both are investments without defined payouts and maturity dates. Requiring periodic changes from the remeasurement of crypto assets in net income is consistent with the presentation requirements for those changes in investments in equity securities.

BC45. Nearly all comment letter respondents supported including changes from the remeasurement of crypto assets in net income. However, a few stakeholders supported including changes in the fair value of crypto assets in other comprehensive income until those gains and losses are realized through the sale or disposal of the crypto asset. Those stakeholders were concerned primarily about the volatility in earnings that the changes in fair value may cause.

BC46. The Board decided not to present changes in the fair value of crypto assets in other comprehensive income. Many investors said that they would prefer to see that volatility reflected in net income because it would provide transparent, decision-useful information about the performance of crypto assets and an entity’s ability to manage them. Furthermore, neutrally reflecting changes (that is, both decreases and increases in fair value) in net income would improve financial reporting and address concerns that the current accounting model does not reflect the underlying economics of crypto assets.

BC47. The Board also decided to present aggregate gains and losses on crypto assets separately from amortization expense and impairment losses of other intangible assets. Similar to its decisions on the balance sheet presentation, the Board decided that changes from remeasurement of crypto assets should be presented separately from changes in other intangible assets because crypto assets are measured and generate benefits differently from other intangible assets.

BC48. Several comment letter respondents recommended that the Board clarify whether changes from remeasurement should be presented in operating or nonoperating income. Those respondents commented that without specific guidance entities would analogize to other GAAP, which could result in diversity in practice. The Board considered that feedback and observed that an entity should classify gains or losses from the remeasurement of crypto assets as operating or nonoperating based on its facts and circumstances. Additionally, the Board observed that GAAP does not provide explicit guidance on the income statement presentation of gains and losses from the remeasurement of other assets, such as equity securities.

BC49. A few comment letter respondents recommended that the Board provide guidance on the presentation of realized and unrealized gains and losses in the income statement. The Board observed that gains and losses on crypto assets are the result of fair value remeasurements throughout the holding period. Because those assets are remeasured at fair value up to the date of sale, the gain or loss recognized as a result of sale may be zero. In addition, because gains and losses on crypto assets are recognized in net income at each remeasurement (unlike certain debt securities), there is no recognition upon disposition of gains or losses that have been recognized in other comprehensive income. The Board acknowledged that, in practice, some consider the difference between the carrying amount at the last balance sheet date and the consideration received at the time of sale to be a realized gain or loss. However, that amount does not represent the total amount of realized gains and losses from disposition, which is the difference between the disposal price and the cost basis of the asset. The total realized gain or loss from disposition is required to be disclosed under the amendments in this Update. Therefore, the Board observed that distinguishing whether gains and losses recognized in a given period are realized or unrealized is unnecessary and could be confusing.

BC50. The amendments in this Update specify that cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business (or as a contribution, in the case of a not-for-profit entity) and are converted nearly immediately into cash should be presented as operating cash flows.

BC51. The Board decided that specific presentation requirements are important for crypto asset transactions with near immediate liquidation because a different classification in the specified circumstances likely would mislead investors. That is because classifying these cash receipts as investing activities when an entity receives crypto as a form of consideration for a routine operating activity or as a contribution that is immediately (or nearly immediately) converted to cash would not reflect the economics of the activity and could diminish an investor’s ability to assess the uncertainty of an entity’s prospective cash flows. The Board expects that entities will be able to apply that guidance consistently without creating additional cost or complexity. Almost all comment letter respondents supported the proposed classification of those cash flows as operating activities because it would better reflect the economics of the activity.

BC52. Similarly, on the basis of feedback received in the comment letters, the Board decided to require that a not-for-profit entity that nearly immediately liquidates crypto assets received with donor-imposed restrictions for long-term or capital use classify the cash inflows as financing, which is consistent with the required classification of donated financial assets with those donor-imposed restrictions.

BC53. The Board intended the phrase nearly immediately to mean a short period of time that is expected to be within hours or a few days, rather than weeks. Almost all comment letter respondents supported the Board’s decision on using the phrase nearly immediately in the context of crypto asset transactions. The Board expects that the meaning of the phrase nearly immediately in the context of businesses to be similar but not identical to the meaning of the phrase in the context of not-for-profit entities. Paragraph BC8 of Accounting Standards Update No. 2012-05, Statement of Cash Flows (Topic 230)—Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows, states that the term nearly immediately in the context of the liquidation of donated financial assets means days, not months. For that reason, the Board concluded that it would be appropriate for not-for-profit organizations to apply the same threshold to the sale proceeds of donated crypto assets as to the sale proceeds of donated financial assets.

BC54. Notwithstanding the amendments in this Update, on the basis of requests for incremental guidance from some respondents, the Board also considered whether the current guidance is sufficient for entities to determine the presentation of cash and noncash activities related to other crypto asset transactions in the statement of cash flows. Current guidance does not prescribe a particular classification for the cash paid to acquire, or cash received to sell, intangible assets. The Board concluded that incremental cash flow presentation guidance for crypto assets is unnecessary because the guidance in Topic 230, Statement of Cash Flows, although not specific to crypto assets, provides sufficient guidance for classifying cash flows. Entities should continue to apply Topic 230 in classifying cash flows associated with crypto asset transactions based on an entity’s facts and circumstances, including evaluating the nature of the cash flows and the purpose of the activities that give rise to them, which will involve judgment.

BC55. A key objective for this project, based on stakeholders’ feedback on the ITC and outreach, is to improve the information about crypto assets provided to investors in the financial statements.

BC56. Chapter 8, Notes to Financial Statements, of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, suggests possible information for the Board’s consideration when deciding on the disclosure requirements for a Topic in the Codification. The amendments in this Update result from the Board’s consideration of the guidance in Chapter 8 of Concepts Statement 8 as well as feedback received from outreach with stakeholders and comment letter respondents. The enhancement to disclosures is incremental to any disclosures required by other Topics to which crypto assets or the entities that hold them may be subject.

BC57. The Board affirmed that the fair value disclosures required by Topic 820 are required for crypto assets. The Board concluded that the disclosure requirements in that Topic provide decision-useful information about crypto assets measured at fair value. In affirming that the Topic 820 fair value disclosures should be provided for crypto assets, the Board observed that private companies are exempt from certain of those disclosure requirements.

BC58. Additionally, for all entities, the Board considered disclosures beyond those required by Topic 820 related to the unique nature of crypto assets, the variation in the regulation of domestic and international markets for crypto assets, and the relative maturity of the markets in which crypto assets are traded. The Board considered those additional disclosures for all holders of crypto assets to improve the information provided to investors and increase comparability.

BC59. Investors requested more transparency about an entity’s individual holdings of crypto assets to understand the present risks at the reporting date. The Board proposed that entities disclose at interim and annual periods for each significant holding of crypto assets the name, cost basis, fair value, and number of units held, as well as the aggregate fair value and cost basis of the crypto asset holdings that are not individually significant. Determining which crypto asset holdings are significant should be based on the fair value of each holding.

BC60. Many respondents commented that the proposed significant holdings disclosure is operable and that requiring that disclosure will allow investors to analyze and assess the exposure and risk of significant individual crypto asset holdings. The Board decided not to prescribe what cost method a reporting entity must use when determining and disclosing the cost basis (for example, first-in, first-out; specific identification; average cost; or other method used) and decided to require disclosure of the cost basis used. The majority of respondents supported the Board’s decision not to prescribe a cost method. Respondents observed that entities analogize to existing guidance and consider various factors in selecting a cost method and that prescribing a cost method would be complex and costly for entities to implement. On the basis of feedback from respondents, the Board decided to require the disclosure as proposed.

BC61. Although some comment letter respondents suggested that the Board prescribe a threshold for determining significant holdings (such as an entity’s top 5 or 10 crypto asset holdings by fair value), there was no consensus on what that threshold should be. The Board decided, and many comment letter respondents agreed, that a bright line may not be suitable and may be insufficient in reflecting an entity’s risks associated with various crypto assets. Therefore, the Board decided to allow entities to use appropriate judgment to determine their significant holdings. Using the term significant holdings is consistent with other GAAP requirements and is not further defined in the amendments in this Update.

BC62. A trade group recommended that the Board provide certain investment companies within the scope of Topic 946 with an exemption from the significant holdings disclosure because it is similar to what is required to be disclosed as part of the schedule of investments. The Board observed that an entity is not required to duplicate the significant holdings disclosure if that information is presented or disclosed elsewhere in the financial statements. However, if an entity provides the information required in the significant holdings disclosure outside the financial statements, that entity must provide the required disclosures within the financial statements.

BC63. The Board decided to require that an entity disclose when its crypto assets are subject to contractual sale restrictions, the fair value of the restricted crypto assets, the nature and remaining duration of the restriction, and the circumstances that would cause the restriction to lapse. In outreach, investors supported requiring this disclosure because it would provide additional information about the liquidity risk associated with an entity’s holding of restricted crypto assets. Most comment letter respondents who commented on that disclosure supported this requirement for similar reasons.

BC64. Investors who participated in outreach on this project and many comment letter respondents supported disclosing the reconciliation of the beginning and ending balances of crypto asset holdings because it would provide information about an entity’s crypto asset activities during the period and capital allocation strategy. Furthermore, some respondents stated that a disclosure of this nature may not be costly because crypto asset recordkeeping software currently tracks the information that would be necessary to provide the reconciliation. Some respondents that are not investors disagreed and stated that the disclosure would not be decision useful and would be excessive given the other disclosures that the Board proposed and other existing disclosure requirements in GAAP. However, based on strong support from investors, the Board decided to require that entities disclose an aggregate reconciliation of crypto assets, but only for annual periods. That reconciliation should include separate disclosure of additions, disposals, gains recognized during the period, and losses recognized during the period.

BC65. The Board decided that gains and losses should be separately disclosed in the reconciliation because that information allows an investor to identify whether there are large gains offsetting large losses during the period. The amendments in this Update also specify that gains and losses should be determined on a crypto-asset-by-crypto-asset basis to increase the consistency and comparability of that information between reporting entities. The Board observed that the disclosure of gains and losses may indicate unique circumstances related to a particular crypto asset or that an entity has changed its strategy.

BC66. An entity is required to provide a description of the additions (for example, purchases, receipts from customers, or mining activities) and dispositions (for example, sales or payment for services) as part of the reconciliation or in its annual disclosures. The Board noted that the information about the nature of additions and dispositions helps investors more easily identify and analyze noncash transactions involving crypto assets.

BC67. The amendments in this Update also require that an entity disclose the cumulative realized gains and cumulative realized losses resulting from crypto asset disposals that occurred during the period. The gains and losses represent the difference between the disposal price and the cost basis of those assets. Some investors noted that a disclosure of this nature would provide them with useful information about an entity’s effectiveness over the management of its crypto assets.

BC68. The Board decided that an entity need not include within the reconciliation activity related to crypto assets received as noncash consideration in the ordinary course of business (or as a contribution, in the case of a not-for-profit entity) that are converted nearly immediately into cash. The Board supported this exemption because disclosing that activity may not provide investors with decision-useful information because those entities have no ongoing risk exposure to crypto assets, even if that activity was significant during the period.

BC69. The Board acknowledged that the Private Company Decision-Making Framework indicates that private companies generally should not be required to disclose a reconciliation of the beginning and ending balances of balance sheet line items. The Board received mixed feedback from comment letter respondents and Private Company Council members about requiring this disclosure for private companies. However, those that supported this disclosure stated that it would provide relevant information for private company investors and would allow an investor to understand an entity’s crypto asset activities during the reporting period. Stakeholders told the Board that a disclosure of this nature may not be costly because crypto asset recordkeepers currently are tracking the information that would be necessary to provide the reconciliation. As a result, the Board decided not to have a different requirement for private companies.

BC70. Before the issuance of the proposed Update, the Board considered feedback received from stakeholder outreach for other suggested disclosures about crypto assets that could be useful, including additional information about gains and losses, the nature and purpose of holding crypto assets, information about pricing, and information about the cryptographic private key. In some cases, the Board observed that similar information is not currently required for similar assets and could be obtained by the disclosure of the reconciliation, by the disclosure about significant holdings, or from other existing disclosure requirements. For other suggested disclosures, the Board decided that the information to be disclosed was too detailed. A majority of comment letter respondents agreed with the Board’s rationale and some commented that additional disclosures could be provided by entities on a voluntary basis. Therefore, the Board decided not to require those additional disclosures.

BC71. Some comment letter respondents suggested additional disclosures for the Board’s consideration. However, the Board decided not to require those additional disclosures because they duplicate existing requirements or are not within the scope of the amendments in this Update.

BC72. The Board decided that the amendments in this Update are effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, for all entities. Consistent with feedback from investors and preparers, the Board decided that early adoption is permitted, including adoption in an interim period as of the beginning of the annual period that includes that interim period or in an annual period as of the beginning of that annual period.

BC73. A majority of comment letter respondents indicated that they would not incur significant implementation costs or need a significant amount of time to apply the amendments in this Update because (a) entities currently apply Topic 820 when evaluating crypto assets for impairment and (b) some entities are currently providing similar information to their investors on a voluntary basis. Therefore, the Board concluded that the effective date should provide sufficient time for entities to understand and apply the amendments. Additionally, nearly all respondents who provided feedback on whether early adoption should be permitted indicated that it should be permitted.

BC74. Some comment letter respondents provided feedback on whether entities other than public business entities would need more time than public business entities to implement the amendments in this Update. Half of those respondents indicated that entities other than public business entities should have a deferred effective date to learn from the implementation experiences of public business entities. The other half of respondents indicated that all entities should have the same amount of time to implement the amendments because all entities currently need to apply the guidance in Topic 820 when evaluating crypto assets for impairment. Additionally, based on respondents’ feedback, the Board anticipates that many entities will early adopt the amendments, which will provide examples of financial statements and disclosures that may be useful for other entities adopting the amendments in this Update. Considering that, as well as the effective date and that entities currently apply Topic 820 in evaluating the impairment of crypto assets, the Board decided not to provide a different effective date for entities other than public business entities.

BC75. The amendments in this Update require a cumulative-effect adjustment, including the direct effects of that adjustment such as tax consequences, to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of the beginning of the annual period in which an entity adopts the amendments.

BC76. Nearly all comment letter respondents supported those transition requirements. However, a few respondents commented that they would support an option or requirement for entities to apply the amendments in this Update on a full retrospective basis. Those respondents commented that full retrospective application would improve comparability and may not be costly. Other respondents supported not requiring full retrospective application because it would be complex and costly and would provide investors with limited incremental information.

BC77. The Board decided against requiring that reporting entities apply the amendments in this Update through a full retrospective approach, or providing an option for entities to do so, because it concluded that the expected costs of full retrospective application may not justify the potential expected benefits for investors. The Board agreed with comment letter respondents who said that full retrospective application could be complex and costly and would provide investors with limited benefits, given continuous changes in the fair value of those crypto assets.

BC78. The Board also considered, but rejected, prospective application of the amendments in this Update, which would have resulted in recognizing the effects of initially applying the amendments through net income. In doing so, the decision usefulness of information provided to investors could have been diminished because those effects would have been presented with any gains or losses that may arise from subsequently measuring crypto assets in the period of adoption.

BC79. Consistent with feedback from investors and preparers, the Board decided that early adoption is permitted, including adoption in an interim period as of the beginning of the annual period that includes that interim period.

BC80. In June 2019, the IFRS Interpretations Committee (IFRIC) clarified that cryptocurrencies (a subset of crypto assets that have certain characteristics that differ from the scope of the amendments in this Update) held for sale in the ordinary course of business should be measured at the lower of cost and net realizable value in accordance with IAS 2, Inventories, unless the asset holder is a commodity broker-trader, in which case the cryptocurrencies should be measured at fair value less costs to sell. All other holdings of cryptocurrencies should be accounted for in accordance with IAS 38, Intangible Assets.

BC81. IAS 38 requires impairment testing of intangible assets, which is similar to current GAAP. However, unlike current GAAP, impairment losses may be reversed under certain circumstances. In addition, entities may elect to carry an intangible asset with an active market at a revalued amount, which is its fair value at the date of revaluation less any accumulated impairment losses that are recognized after the revaluation date. IFRS Accounting Standards require that any changes in fair value above historical cost be recognized in other comprehensive income, while any changes in fair value below historical cost should be recognized in profit and loss.

BC82. There are similarities between the amendments in this Update and the IFRS Accounting Standards revaluation model. One important similarity is that for crypto assets traded in active markets, if entities elect to apply the revaluation model in IAS 38, both require recognition of crypto assets at fair value on the balance sheet. There also are four key differences between the amendments and IFRS Accounting Standards. Those differences are that:

BC83. Additionally, the amendments in this Update require disclosures that are specific to crypto assets that are not included in IFRS Accounting Standards.

The amendments to the FASB Accounting Standards Codification® in this Accounting Standards Update require improvements to the GAAP Financial Reporting Taxonomy and SEC Reporting Taxonomy (collectively referred to as the “GAAP Taxonomy”). Those improvements, which will be incorporated into the proposed 2024 GAAP Taxonomy, are available through GAAP Taxonomy Improvements provided at www.fasb.org, and finalized as part of the annual release process.