In December 2023, the FASB issued ASU 2023-08
, Accounting for and Disclosure of Crypto Assets
, requiring all entities holding crypto assets that meet certain requirements to subsequently measure those in-scope crypto assets at fair value, with the remeasurement recorded in net income.
The new ASU applies to all entities, including private companies, not-for-profit entities, and employee benefit plans. Entities with holdings of in-scope crypto assets should apply the new guidance using a modified retrospective method with a cumulative-effect adjustment recorded to the opening balance of retained earnings as of the beginning of the year of adoption.
All entities that hold in-scope crypto assets are required to adopt the new standard in fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted in any interim or annual period for which the financial statements have not been issued (or made available for issuance). Reporting entities who have not yet adopted the new guidance should continue to follow the existing guidance in CA 2.1
through CA 2.3
In accordance with ASC 250-10-50-2
, if a reporting entity adopts the new ASU in an interim period, the annual financial statement disclosures should also be included in each interim report in the year of the adoption. See FSP 30.9.2
for further information.
ASC 350-60 applies to all entities with holdings in crypto assets that meet the criteria outlined in ASC 350-60-15-1.
The guidance in this Subtopic applies to holdings of assets that meet all of the following criteria:
- Meet the definition of intangible assets as defined in the Codification
- Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
- Are created or reside on a distributed ledger based on blockchain or similar technology
- Are secured through cryptography
- Are fungible
- Are not created or issued by the reporting entity or its related parties.
If an entity holds a crypto asset that meets the definition of an intangible asset but does not meet all of the criteria in ASC 350-60-15-1, it will continue to be accounted for as an indefinite-lived intangible asset under ASC 350-30
The identification of in-scope crypto assets requires a detailed understanding of the specific nature of the crypto asset in question, especially when assessing “wrapped tokens,” which represent a wide array of technological solutions, contractual rights, and other characteristics. Sometimes, holders of wrapped tokens are not afforded contractual rights to require delivery of the underlying token; in those instances, they may be in scope of ASC 350-60 (assuming all of the remaining criteria are met) because they do not provide the holders an enforceable right to other assets. In other cases, holders of wrapped tokens are provided with enforceable rights to other assets, including other in-scope crypto assets; such wrapped tokens would not be within the scope of ASC 350-60 and instead, depending on facts and circumstances, may be accounted for under other GAAP (e.g., as a receivable with an embedded derivative). See CA 3.1.2
for additional information.
2.4.1 Recognition, initial measurement, and derecognition of crypto assets in scope of ASC 350-60
Recognition and initial measurement
ASC 350-60 does not address the recognition, initial measurement, or derecognition of crypto assets. Therefore, because an in-scope crypto asset meets the definition of an intangible asset, we believe entities should continue to follow the guidance in ASC 350
, ASC 610-20
, and associated interpretations, including views expressed by the SEC staff and published by the AICPA on crypto lending. See CA 2.1
, CA 2.3
, and CA 3.4
for additional information.
Further, because ASC 350-60 does not address the accounting for transaction costs incurred to acquire crypto assets, we believe a reporting entity will generally capitalize transaction costs based on the guidance in ASC 350-30-30-1
and ASC 805-50-30-1
through ASC 805-50-30-4
for crypto assets acquired individually or in a group. However, the accounting for transaction costs may differ depending on the manner in which the crypto assets were acquired (e.g., for crypto assets acquired in a business combination, transaction costs would be expensed in accordance with ASC 805
Transactions involving the receipt of in-scope crypto assets in exchange for goods or services provided in the ordinary course of business with customers should follow the noncash consideration guidance in ASC 606
. If a reporting entity obtains crypto assets from a non-customer in return for non-financial assets, ASC 610-20
should be applied to determine the initial measurement of the acquired crypto asset. Therefore, because ASC 610-20
refers to the measurement principles of ASC 606-10-32-21
to determine the transaction price when noncash consideration is received, the reporting entity should measure the estimated fair value of the noncash consideration at contract inception (when the criteria in ASC 606-10-25-21
are met). The estimated fair value as of the contract inception date may differ from the fair value on the date the crypto asset is received. See Example CA 2-1 in CA 2.1.1
and CA 3.1
for additional information.
provides specific guidance for the derecognition of intangible assets, which would include sales of crypto assets (that are accounted for as intangible assets in scope of ASC 350-60) to non-customers. Determining whether the counterparty to a disposal arrangement is a customer is important as proceeds received from customers will follow the guidance in ASC 606
If a counterparty to a contract engages with an entity to obtain the output of the reporting entity’s ordinary activities in exchange for consideration, that counterparty is considered a customer. Otherwise, the counterparty is considered a non-customer. See Example CA 2-4 in CA 2.3.1
for additional information. Transactions with customers will be reported in revenue and cost of goods sold under ASC 606
while transactions with non-customers will usually be presented as a gain or loss included in income from continuing operations under the applicable guidance.
In order for a reporting entity to derecognize crypto assets, it must evaluate whether it transferred control. For crypto assets classified as intangible assets in scope of ASC 350-60, an entity must determine whether it has transferred control of the crypto assets in accordance with ASC 610-20
. The seller should first evaluate whether it has (or continues to have) a controlling financial interest under ASC 810
. If the seller has a controlling financial interest, derecognition would not be appropriate as it would continue to consolidate the applicable subsidiary. If the seller determines it does not have a controlling financial interest, the seller should next evaluate the guidance in ASC 606
to assess whether control has transferred. The reporting entity should first evaluate the criteria in ASC 606-10-25-1
to determine whether a contract exists.
If a contract does not exist (e.g., if collection of consideration from the counterparty is not probable), the entity would continue to recognize the crypto asset as required by ASC 350-10-40-3
. Additionally, the entity will record a liability for any consideration received. Subsequently, the entity will continue to assess the contract to determine the point at which the criteria for revenue recognition are met in accordance with ASC 606-10-25-1
. Alternatively, the reporting entity would derecognize the liability when one of the events described in ASC 606-10-25-7
occurs (e.g., the contract is terminated).
Once the seller determines the criteria for revenue recognition are met, the seller would need to determine the point at which the counterparty obtains control as described in ASC 606-10-25-30
. For crypto assets, the transfer of control analysis should consider which entity bears the risks and rewards of ownership. Once control is transferred, the crypto asset will be derecognized and the seller would recognize the resulting gain or loss.
If the counterparty has not yet obtained control over a crypto asset, but has paid cash to the seller, the seller should not derecognize the crypto asset but instead apply the guidance in ASC 606-10-45-2
and record a liability for any consideration received.
For many transactions involving crypto assets within the scope of ASC 610-20
, control over each crypto asset in the contract will transfer at the same time. This means that the crypto assets transferred would be derecognized at the same time. Therefore, in practice, the reporting entity may not need to separate and allocate the consideration to each distinct crypto asset. However, for other transactions, control over each distinct crypto asset may not transfer at the same time. This would result in those crypto assets being derecognized at different points in time, making it necessary to separate and allocate consideration to each distinct crypto asset in the transaction.
Once a reporting entity determines that it should derecognize a crypto asset under ASC 610-20
, the gain or loss on the transfer must be determined. The gain or loss is calculated as the difference between the consideration allocated to each distinct crypto asset and its carrying amount. When a contract includes the transfer of more than one distinct asset, an entity should allocate the consideration to each distinct asset in accordance with ASC 606-10-32-28
through ASC 606-10-32-41
. Generally, this means that the consideration will be allocated to the distinct assets based on their relative standalone selling prices.
Noncash consideration received in exchange for the transfer of crypto assets needs to be measured at fair value at contract inception. If a reporting entity exchanges one crypto asset for another crypto asset, the reporting entity may not be able to reliably determine the fair value of noncash consideration received. In this case the value of the noncash consideration received should be measured indirectly by reference to the standalone fair values of the crypto assets sold or transferred by the reporting entity.
Crypto assets in scope of ASC 350-60 are fungible (i.e., each unit is identical and has the same fair value at any given time). When an entity sells a portion of its crypto asset holdings, it will need to determine a systematic and rational approach to identify the units sold. Reporting entities should have a method for tracking the acquisition date and purchase price for their crypto asset holdings. In addition, entities should adopt a method (e.g., specific identification, FIFO) to identify the units sold and determine the cost basis to use. See CA 5.4.2 for additional information.
2.4.2 Subsequent measurement of crypto assets in scope of ASC 350-60
ASC 350-60-35-1 addresses the subsequent measurement of in-scope crypto assets. An entity that holds in-scope crypto assets is required to subsequently measure those assets at fair value, with the gain or loss associated with remeasurement of the crypto assets reported in net income. This guidance applies to holdings of all in-scope crypto assets, regardless of whether they have quoted prices in an active market. See CA 4.1
for additional fair value considerations.