An Initial Coin Offering (ICO) is a form of fundraising that harnesses the power of cryptographic assets and blockchain-based trading. An ICO allocates tokens instead of shares to investors. Each ICO will have unique terms and conditions. It is important for potential investors to review the whitepaper or underlying documents accompanying the ICO token offering, and to understand what exactly is being offered. In situations when rights and obligations arising from a whitepaper or their legal enforceability are unclear, legal advice might be needed to determine the impact of the terms.

ICOs might be considered to be securities by a securities regulator. As a result, issuers should understand the regulatory environment and the impact that it has on financial reporting.

Issuers of ICOs will need to determine the applicable accounting standard for the ICO token issued. This will depend on the nature of the ICO token issued, and the rights and obligations it provides to an owner. For example, the token may provide a right to cash (financial instrument) or a residual interest in the entity (equity), it may be in substance a contract with a customer (revenue transaction), or other GAAP may apply. In accordance with ASC 350-60-15-1(f), the issuer of ICO tokens should not account for such tokens under ASC 350-60 because they are created or issued by the reporting entity (or its related parties) and are therefore not in scope.

Similarly, investors in ICOs will need to assess the rights they obtain through the acquisition of the token to determine the applicable accounting as discussed in CA 2.