How will U.S. crypto accounting regulations impact assets?

Ritu13

Accounting Treatment of Crypto Assets by U.S. Public Companies: Before and After the 2023 ASU

With the development and popularization of crypto assets, an increasing number of companies are holding or using them to seek investment returns, improve payment efficiency, or expand business models. The United States is one of the largest crypto asset markets globally and one of the earliest countries to enter the crypto asset field. However, U.S. public companies have shown significant differences and uncertainties in the accounting treatment and disclosure of crypto assets

. Due to the lack of specific guidance for crypto assets in the U.S. Generally Accepted Accounting Principles (US GAAP), different companies adopt different accounting models for crypto assets, leading to a lack of comparability in financial information.

To address this issue, the Financial Accounting Standards Board (FASB) proposed an accounting standards update (ASU) in March 2023, titled "Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting and Disclosure of Crypto Assets." The ASU, expected to be officially released by the end of 2023 and effective in 2025, aims to bring consistency and comparability by requiring the fair value measurement of qualifying crypto assets and separate disclosure.

Before the 2023 ASU, U.S. companies followed diverse accounting methods for crypto assets. Companies like Tesla, Square, and MicroStrategy, holding crypto assets as long-term investments, treated them as indefinite-lived intangible assets and measured them at historical cost, with impairments recognized if their fair value declined. On the other hand, mining companies, such as Bit Digital and Riot Blockchain, often considered crypto assets as current assets measured at fair value due to their intention to convert them into profits.

However, these methods posed challenges. The use of historical cost valuation by companies like Tesla could lead to underestimated profitability, as the market value might significantly differ from the book value. Additionally, the classification of crypto assets as indefinite-lived intangible assets could impact liquidity assessments, as shown by Tesla listing "digital assets" under non-current assets despite the high liquidity of assets like Bitcoin.

The 2023 ASU introduces significant changes. It requires qualifying crypto assets to be measured at fair value and accounted for as intangible assets, separately disclosed in the balance sheet. This update aims to enhance the relevance and credibility of financial reporting by better reflecting the economic substance and market fluctuations of crypto assets.

The ASU addresses some challenges but has limitations. It does not provide explicit guidance on liquidity treatment, nor does it cover certain crypto assets like non-fungible tokens (NFTs) or wrapped tokens. Nevertheless, it represents a crucial step toward regulating crypto asset accounting in the U.S. and aligning it with international financial reporting standards.

In conclusion, the 2023 ASU is a key development in crypto asset accounting for U.S. public companies, bringing them closer to international standards. It addresses previous inconsistencies and provides a foundation for global industry development and standardization.

Pooja193

This will certainly have an impact.

Kapil334

Accounting treatment is the business of professional accountants.

Jiger955

Cryptocurrencies also have a significant impact on the economy.