Implementing the New Crypto Reporting Guidance

Cryptocurrency is no longer a niche investment—it’s a central player in today’s financial landscape. But with growing adoption comes increased scrutiny and compliance demands. The Financial Accounting Standards Board (FASB) shook things up in December 2023 with updated crypto accounting rules. These new guidelines benefit both organizations and stakeholders by requiring fair-value measurements for crypto assets and improving transparency in financial reporting.

But here’s the big question for crypto investors and businesses holding these assets: when should you implement these changes? Do you wait until the mandatory deadline, or jump on the opportunity early? This post walks you through what you need to know about the FASB’s updated crypto reporting guidance, the scope of its applicability, and why early adoption might make sense for your company.

The Need for Change in Crypto Accounting

Under the previous accounting treatment, crypto assets were categorized as intangible assets and reported on the balance sheet at historical cost. While this approach worked for certain types of assets, it created significant challenges for crypto assets. Here’s why:

• Impairment Issues: Companies had to write down the value of crypto assets when prices dropped significantly, with no way to reverse those impairments—even if prices later recovered.
• Lack of Transparency: Investors and stakeholders often struggled to get a clear picture of a company’s crypto holdings due to a lack of fair-value measurements and disclosures.

This accounting model frustrated businesses and investors alike, leading to lobbying for updated guidelines that better reflect the economic reality of cryptocurrencies.

Enter ASU No. 2023-08, a landmark change from FASB. This update redefines how companies account for cryptocurrency holdings, requiring that crypto assets be reported at fair value, with changes in value recognized in comprehensive income each reporting period. The result? A more accurate, transparent view of a company’s digital asset portfolio.

Key Features of the New Crypto Reporting Guidance

Here’s a breakdown of the key features:

• Fair-Value Measurement: Companies must report crypto holdings at fair value—what the asset would fetch in an orderly sale to a willing buyer.
• Separate Balance Sheet Presentation: Crypto assets must be reported separately from other intangible assets, ensuring their visibility on financial statements.
• Enhanced Disclosures: Businesses must provide detailed information about crypto holdings, including any sale restrictions and how holdings evolved during the reporting period.

These changes aim to provide investors with comprehensive and transparent financial reporting—helping them make better-informed decisions.

What’s Covered? Understanding the Scope of ASU 2023-08

Not all digital assets are created equal, so it’s important to know which ones fall under the scope of the updated guidelines. To qualify for the fair-value treatment, a crypto asset must meet these six conditions:

1. Fungibility: The asset must be interchangeable with another of equal value. (NFTs are excluded.)
2. Intangible Nature: The asset cannot be a security or fiat currency.
3. No Underlying Claims: The holder cannot have enforceable rights to goods, services, or other assets.
4. Blockchain-Based: The asset must reside on a distributed ledger.
5. Cryptography: The asset must have cryptographic security.
6. Not Issued Internally: The reporting entity or its related parties cannot have created or issued the asset.

These conditions effectively exclude non-fungible tokens (NFTs), fiat currencies, securities, and internally generated tokens or assets. The guidance is universally applicable—private companies, public entities, and nonprofits all follow the same rules with no delayed timelines or exemptions.

When Does It Take Effect?

ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, including interim periods within those years. Calendar-year entities, for example, would implement the rules starting January 1, 2025. But many businesses are choosing to adopt early—here’s why.

Benefits of Early Adoption

While the FASB’s updated guidance doesn’t officially kick in for another year, early adoption offers several strategic advantages:

1. Simplified Reporting

The fair-value accounting model is often easier and more cost-effective than the previous cost-less-impairment approach. Measuring assets at fair value eliminates the need to track impairments and prevents the headache of irreversible write-downs.

2. Improved Transparency

Clearer balance sheet presentation and enhanced disclosures give stakeholders a better understanding of your company’s crypto asset portfolio. This can boost investor confidence and enhance your organization’s credibility.

3. Better Decision-Making

Transparent and accurate information enables internal and external stakeholders to make smarter financial decisions. Whether it’s additional investments, selling assets, or leveraging them for strategic opportunities, clarity is key.

4. Stay Ahead of the Curve

Adopting early can give your company a competitive advantage, positioning you as a forward-thinking leader in the crypto space. It demonstrates your commitment to high-quality financial reporting and regulatory compliance.

5. Reduced Compliance Risk

Transitioning now gives your team adequate time to fully understand the new requirements and integrate them into your reporting systems—reducing the risk of errors when compliance becomes mandatory in 2025.

If you’re still unsure whether early adoption is right for your organization, reaching out to a financial advisor can help you weigh the costs and benefits in your unique business context.

Should Your Company Implement Now or Later?

Deciding when to implement ASU 2023-08 comes down to your company’s specific situation. Here are a few questions to guide your decision:

• How significant are crypto holdings to your financial statements?
• Do you want to enhance financial transparency ahead of competitors?
• Are your current accounting systems equipped to handle early adoption?

If crypto assets make up a substantial part of your company’s financial portfolio, the transparency and simplicity offered by the updated guidance may make early adoption a no-brainer. On the other hand, if your crypto holdings are incidental, waiting for the mandatory compliance date might suffice.

Either way, preparing now will help your company create a seamless transition.

Secure Your Crypto Accounting Advantage

Staying compliant with accounting standards isn’t just about following the rules—it’s about gaining a competitive edge. The FASB’s updated crypto reporting guidance is a game-changer for businesses holding crypto assets, offering new levels of transparency and efficiency. Whether you choose to adopt early or closer to the deadline, the time to start planning is now.

Have more questions about early adoption or need help implementing the new standards? Contact SD Mayer & Associates today for expert guidance. Our team can help you streamline your crypto accounting, enhance transparency, and position your company for success in this rapidly evolving space.