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Accounting For Crypto Assets
Accounting For Crypto Assets 
In late December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, titled “Accounting for and Disclosure of Crypto Assets.” This eagerly anticipated update aims to refine the accounting treatment of crypto assets under U.S. Generally Accepted Accounting Principles (GAAP), aligning it more closely with the economic realities of these digital assets.
Crypto assets, also referred to as digital assets, are representations of value or rights that can be electronically transferred or stored using blockchain or similar distributed ledger technology. Unlike traditional assets, crypto assets lack tangible physical form. While Bitcoin is perhaps the most widely recognized crypto asset, thousands of variations exist.
Previously, crypto assets were accounted for as indefinite-lived intangible assets and subject to impairment testing at least annually. However, stakeholders consistently voiced concerns that this approach failed to provide comprehensive and relevant information. Notably, the accounting model only recognized decreases, not increases, in asset value, thus overlooking crucial aspects of asset performance and financial position.
FASB ASU 2023-08 addresses these concerns by requiring changes in fair value to be recognized in net income each reporting period. For instance, if a crypto asset purchased for $1,000 appreciates to $2,500 by year-end, the entity records a $1,500 increase in net income for that year.
Furthermore, the update mandates that crypto assets be presented separately at fair value on the balance sheet, with changes in fair value reflected separately in the income statement. Additionally, enhanced disclosures regarding crypto assets are now required in financial statements and footnotes.
Effective for fiscal years beginning after December 15, 2024 (calendar year 2025 financial statements), the amendments allow for early adoption. Entities adopting the new standard must make a cumulative adjustment to the opening balance of Retained Earnings at the start of the annual reporting period.