FASB allows US firms to use fair-value accounting under new rules

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The Financial Accounting Standards Board (FASB) has published an accounting standard update (ASU) allowing firms to use ‘fair-value accounting’ for certain digital assets held on their balance books.

The FASB, a private standard-setting body that establishes and improves accounting principles in the United States, published an ASU to improve the accounting rules for certain digital assets. A key change involves allowing firms to use fair-value accounting for certain digital assets held on their balance sheets.

“The new standard responds to feedback from stakeholders of all backgrounds who indicated that improving the accounting for and disclosure of crypto assets should be a top priority for the Board,” said FASB Chair Richard R. Jones.

He said that the update will “provide investors and other capital allocators with more relevant information that better reflects the underlying economics of certain crypto assets and an entity’s financial position while reducing cost and complexity associated with applying current accounting.”

Specifically, the amendments in the ASU require an entity to measure certain digital assets at “fair value” each reporting period, with changes in fair value recognized in net income.

In accounting, “fair-value” means a rational and unbiased estimate of the potential market price of a good, service, or asset. This will come as a welcome change from the previous standard, the “indefinite-lived intangible asset accounting model,” which doesn’t regularly update the asset’s value based on market changes but assesses impairments—significant, permanent reductions in the value of an asset—periodically.

In the context of digital assets, fair-value has the potential to better capture the dynamic and volatile nature of prices, providing transparency and aligning with the rapid changes inherent in the digital asset market, which can help with informed decision-making.

“In addition to better reflecting the economics of crypto assets, measuring those assets at fair value will likely reduce cost and complexity associated with applying the current cost-less-impairment accounting model for many entities,” said the new guidelines.

The ASU amendments also improve the information provided to investors about an entity’s digital asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.

The amendments in the ASU apply to all digital assets that:

• meet the definition of intangible asset as defined in the FASB;
• do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets;
• are created or reside on a distributed ledger based on blockchain or similar technology;
• are secured through cryptography;
• are fungible;
• and are not created or issued by the reporting entity or its related parties.

The new rules will be effective as of fiscal years beginning after December 15, 2024. Still, in the interim period, companies are permitted to adopt them earlier for financial statements that have not yet been issued.

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