FASB Tentatively Approves Separate Disclosure Requirements for Crypto

The Financial Accounting Standards Board recently made a tentative board decision to require companies to disclose crypto assets on financial statements separately from other intangible assets. The decision is part of the FASB’s move to increase financial transparency related to cryptocurrency holdings and it builds on the tentative decision in October to report crypto holdings at fair value.

Required Disclosures

The FASB decided to require all entities, including public and private entities and entities that apply industry-specific guidance, to disclose the following:

• Crypto asset holdings: Entities must disclose, annually and at interim periods, the name of the crypto asset, fair value, units held, and cost basis. The fair value and cost basis of crypto asset holdings may be aggregated into a single line item.
• Annual reconciliation: Entities must disclose an annual reconciliation of activity disaggregated by additions, dispositions, gains, and losses with a description of the additions and dispositions. The disclosure must also include the difference between a crypto asset’s sale price and cost basis upon the disposition of the asset.
• Fair value of restricted assets: Entities must disclose, annually and at interim periods, the fair value of the crypto assets that are restricted from sale, the nature and remaining duration of the restriction, and circumstances that could cause a lapse in the restriction.

The FASB also affirmed that disclosures in Topic 820, Fair Value Measurement, would be required for crypto assets within the scope of this project. Those disclosures would be required in annual and interim periods.

The FASB also decided that investment companies and non-profit entities should present their financial statements in accordance with the presentation requirements in Topic 946, Financial Services—Investment Companies and Topic 958, Not-for-Profit Entities.

Notably, the FASB did not approve requirements to disclose unrealized gains and losses; the nature and purpose of crypto asset holdings; the holder of the cryptographic private key information and the fair values of the associated asset; or the time of day, time zone, and date the pricing information was obtained to measure the value of an entity’s crypto assets.

Transition Period

Entities would be required to apply the disclosure guidance either retrospectively to all prior periods presented in the financial statements or prospectively to awards granted or modified on or after the effective date with qualitative disclosure about the nature of and reason for the change in accounting principle.

Evolving FASB Guidance

The decision for separate disclosure of crypto assets is the latest step in the FASB’s Accounting for and Disclosure of Crypto Assets project. The FASB recently added the accounting and reporting of exchange-traded digital assets and exchange-traded commodities to its agenda, beginning with its research agenda in December 2021 and its technical agenda in May 2022. In August 2022, FASB issued a tentative decision on the scope criteria for the project. FASB then issued a tentative decision in October to require fair value measurement for crypto assets. With the most recent decision, the FASB directed its staff to draft a proposed Accounting Standards Update for vote by written ballot with a comment period of 60 days.

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