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2023 Revamped Crypto Accounting Standards Proposed by FASB

Crypto Accounting The Complete Guide

This year we’ve witnessed significant developments in the realm of cryptocurrency regulation. The Financial Accounting Standards Board (FASB) unveiled a set of proposed guidelines aimed at revolutionizing the accounting standards for crypto assets. Concurrently, the Securities and Exchange Commission (SEC) issued an alert urging investors Crypto Accounting to exercise caution when considering investments in “crypto asset securities.”

The FASB’s Crypto Accounting proposed guidelines represent a paradigm shift in the treatment of crypto assets, aligning them more closely with traditional assets and enhancing the accuracy of their valuation. Conversely, the SEC seems determined to reinforce its stance that numerous crypto assets should be classified as securities, thereby highlighting their inherent risks as investment vehicles.

In light of these developments, companies must seek the expertise of experienced legal counsel. Crypto Crypto  Accounting They must adequately prepare for the forthcoming changes in accounting standards and brace themselves for heightened SEC enforcement measures within

the cryptocurrency domain.

The past week witnessed a flurry of cryptocurrency regulatory activities, as accounting standards for companies holding cryptocurrencies were revised, and the SEC intensified its crackdown on the industry, citing widespread fraudulent activities.

The Financial Accounting Standards Board (FASB) took the initiative by proposing updates to accounting standards pertaining to crypto assets. Simultaneously, the SEC’s Office of Investor Education and Advocacy issued an investor alert, cautioning against investing in “crypto asset securities” and citing recent enforcement actions and statements by SEC leaders that underscored the prevalence of fraudulent entities within the industry.

The FASB’s proposed updates to accounting standards for crypto assets are expected to be advantageous for investors. Currently, generally accepted accounting principles (GAAP) categorize cryptocurrency holdings as “indefinite-lived intangible assets” on balance sheets. Under this framework, crypto assets are subject to annual impairment tests, with more frequent evaluations triggered by events or circumstances hinting at a higher likelihood of impairment.

 

Crypto Accounting

 

 

If the carrying value of an asset exceeds its fair value, an entity must recognize an impairment loss and reduce the asset’s carrying amount accordingly. Subsequent increases in carrying value and the reversal of impairment losses are prohibited. In essence, companies holding cryptocurrencies are currently Crypto Accounting only allowed to report decreases, not increases, in the value of their crypto assets on financial statements until those assets are sold under the existing rules for indefinite-lived intangible assets. The FASB’s proposed update seeks to rectify this reporting discrepancy to enhance the accuracy of companies’ financial statements. The FASB suggests that companies disclose the following information for both annual and interim reporting periods:

  • Name, cost basis, fair value, and number of units for each significant crypto asset holding, along with the aggregate fair values and cost bases of crypto asset holdings that are not individually significant.
  • For crypto assets subject to contractual sale restrictions, the fair value of these assets, the nature and remaining duration of the restrictions, and the circumstances that could lead to the lapsing of such restrictions Crypto Accounting.
  • For annual reporting periods, companies should provide the following additional information:
    • An aggregate roll-forward of activity related to crypto asset holdings during the reporting period, including additions (with descriptions of the activities resulting in these additions), dispositions, gains, and losses. If gains and losses are not presented separately, companies are required to disclose the income statement line item where these gains and losses are recognized.
    • For any dispositions of crypto assets during the reporting period, the difference between the sale price and the cost basis, is accompanied by descriptions of the activities leading to these dispositions.
    • The methodology employed to determine the cost basis of crypto assets.

The FASB believes that these changes will provide investors with decision-useful information, offering insights into the underlying economics of these assets and a company’s financial position. Additionally, this proposed measurement aligns the accounting requirements for all holders of crypto assets with the guidelines applicable to other entities with industry-specific guidance, such as investment companies. It also eliminates the need for separate Crypto Accounting impairment testing of crypto assets, thereby reducing associated costs and the complexity of adhering to the current guidance.
Interested parties can provide comments on the proposal until June 6th Crypto Accounting.

The SEC Highlights Risks Associated with Crypto Assets Crypto Accounting

The SEC’s investor alert, released on March 23rd, reflects Chairman Gensler’s commitment to ensuring that crypto investors and markets receive the same level of protection as participants in traditional securities markets. The SEC’s Office of Investor Education and Advocacy outlined four key reasons why it considers crypto assets to be risky investments:

  • Companies offering investments or services related to crypto assets may fail to comply with applicable laws, including federal securities regulations.
  • Investments in crypto asset securities can be highly risky and subject to significant volatility.
  • Fraudsters continue to exploit the increasing popularity of crypto assets to defraud retail investors, often leading to substantial financial losses.
  • Developing an investment plan, understanding risk tolerance, and considering the investment horizon are crucial factors contributing to investment success.
  • The most noteworthy aspect of these warnings is the SEC’s persistent assertion that crypto asset companies are violating federal securities laws by neglecting to register with the SEC. In other words, the SEC maintains that many crypto assets should be classified as securities and fall within its regulatory purview. Consequently, we anticipate ongoing SEC enforcement actions targeting this violation.

Conclusion

The FASB’s proposal, combined with the SEC’s alert, indicates an impending collision between cryptocurrency regulation and crypto companies. While the FASB seeks to establish new standards that treat cryptocurrency holdings by companies more similarly to conventional assets, the SEC continues to advise caution when dealing with crypto assets. These developments serve as a reminder to cryptocurrency firms to engage legal counsel capable of navigating this swiftly evolving legal landscape Crypto Accounting.

In light of the proposed revamped crypto accounting Crypto Accounting standards by the FASB and the SEC’s heightened enforcement authority on securities, the landscape of cryptocurrency regulation is poised for significant changes. Companies operating in the crypto space must proactively adapt to the evolving accounting guidelines and brace themselves for increased scrutiny from regulatory authorities.

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