Reporting entities may accept crypto assets as a form of payment in exchange for goods or services they offer to customers. To determine the classification of the crypto asset received, the reporting entity would consider the guidance in CA 1.
Crypto assets that meet the definition of intangible assets and are received by a reporting entity as payment for goods or services are a form of noncash consideration. Reporting entities should follow the guidance in ASC 606, Revenue from Contracts with Customers, on accounting for the receipt of noncash consideration, which requires the consideration to be recorded at fair value at contract inception. That is, the entity should use the fair value of the crypto asset, measured at the time when all requirements of ASC 606-10-25-1 have been met, as the transaction price.
Refer to RR 4.5 for further guidance on the accounting for noncash consideration.
If the reporting entity continues to hold the crypto assets received, changes in value after contract inception are not reflected in revenue. For example, if the crypto asset is classified as an indefinite-lived intangible asset not in scope of ASC 350-60, any impairments would be reflected as an operating expense.
If the crypto asset received is classified as a financial asset, changes in value after initial recognition will be reflected in other income/loss.
3.1.1 Accounting for crypto assets by broker-dealers
A broker-dealer that is within the scope of ASC 940, Financial services – Brokers and dealers, should recognize any commission income received from its customers as revenue as the services are performed. Any crypto assets held by a broker-dealer as an agent for its customers should not be reflected on the broker-dealer’s balance sheet. However, a broker-dealer should consider Staff Accounting Bulletin No. 121 (SAB 121) which would require it to record a safeguarding liability and a corresponding asset at the fair value of the crypto assets safeguarded for its customers. See CA 3.7.1 for additional information on SAB 121.
Sometimes broker-dealers will hold crypto assets for their own proprietary trading. ASC 940-320-35-1 indicates that proprietary trading inventory should be measured at fair value with changes in fair value recognized in profit and loss. We believe that it is acceptable to interpret the reference to inventory in this context to include crypto assets as the term inventory has historically been interpreted to include other assets such as physical commodities.
3.1.2 Receivable settled in crypto asset
A reporting entity may satisfy its performance obligation prior to receiving the consideration. When the expected consideration is a crypto asset, the reporting entity should consider whether the resulting contract asset or receivable includes an embedded derivative. In determining if an embedded derivative is present, specific consideration should be given to whether the crypto asset meets the criteria for net settlement (i.e., whether it is readily convertible to cash). See DH 4 for guidance on embedded derivative instruments. A similar analysis would be necessary for a reporting entity that has an obligation to deliver crypto assets.
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