FASB Moves to Fair Value Accounting for Measuring Crypto Assets

Who may be interested: Compliance and accounting personnel responsible for their firm’s compliance with GAAP.

Quick Take: The Financial Accounting Standards Board (FASB) reached a tentative decision to make fair value the primary accounting method for measuring crypto assets by both public and private companies. Under a fair value measuring basis, an entity can record both increases and decreases resulting from changes in the value of crypto assets prior to the sale of those assets. The FASB will consider issues regarding presentation, disclosure, and transitioning at a future meeting.

Fair Value as Primary Method: At the October 12, 2022 meeting, the FASB agreed that entities should measure the value of crypto assets they hold using fair value accounting, pursuant to guidance in FASB Topic 820, Fair Value Measurement. Before this tentative decision, most entities classified crypto assets as indefinite-lived intangible assets (like trademarks), requiring use of the cost minus impairment method of measurement. Under that system, entities had to reassess the value of crypto assets at least once a year and record any losses from decreases in value; however, increases in value in subsequent periods could not be recorded until the sale of the assets. FASB members expressed support for the change, in part, because it would allow for further alignment in measuring crypto assets with entities that already follow specialized industry and regulatory guidance requiring fair value measurement of crypto assets.

The FASB members emphasized that a fair value measurement basis would provide greater transparency to investors and better reflect the actual economics of crypto assets which can experience volatile price movements. Under this approach, an entity may be required to record increases and decreases in fair value in comprehensive income each reporting period, and record certain costs incurred to acquire crypto assets, such as commissions, as an expense.

The decision only applies to fungible crypto assets; it does not apply to nonfungible tokens (NFTs), which were excluded from the definition of crypto assets for this purpose in August 2022.

To see the FASB’s summary of the board meeting click here.