Cryptocurrency: The need for more FASB guidance

Cryptocurrencies are not immune to marketplace volatility, despite originally being lauded as a “store of value” inflation hedge.  Bitcoin, Ether, Dogecoin and others have recently experienced significant declines from their peaks.  Cryptocurrencies are proving to be risk assets like many other investment options.  This volatility can become especially troublesome for assets that don’t have any tangible value and lack backing by a national economy. 

In 2022, the Financial Accounting Standards Board (FASB) added a project to improve the accounting for and disclosure of certain digital assets.  This will include evolving issues with recognition, measurement, presentation and disclosure.  Currently, there isn’t specific guidance within generally accepted accounting principles (GAAP) related to cryptocurrency or other digital assets (such as nonfungible tokens, stable coins, etc.). However, in January 2022, the AICPA updated its nonauthoritative guide on best practices for accounting for digital assets.

Current GAAP accounts for cryptocurrencies as indefinite-lived intangible assets unless a reporting entity is a qualifying investment company.  Digital assets are initially recorded at cost, not amortized, and tested at least annually for impairment.  However, triggering events or circumstances may indicate it is more likely than not that an asset’s fair value is less than its current carrying value, resulting in an immediate impairment loss being recorded.  This impairment (often identified by the lowest observable fair value within a reporting period) cannot be recovered, even if the value of cryptocurrency rebounds in the same reporting period.

Many stakeholders desire at least the option to apply a fair value measurement model to capture both the ups and downs of the cryptocurrency market.  However, it is currently uncertain what will result from the FASB’s newly added research project due to the unique nature and market for digital assets.  The first step for the FASB will likely be to narrow down the types of digital assets to be included within the scope of the project, as a more focused project could result in faster answers.

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