Financial Accounting Standards Board votes to publish cryptocurrency draft in March


The Financial Accounting Standards Board, at its February 1 meeting, voted to promote its first standard on cryptocurrencies and digital assets. The exposure draft will be published at the end of March and interested parties will have 75 days to comment.

The board draft has undergone several refinements over the course of several meetings in the last year. During its Aug. 31 meeting, the FASB decided to focus specifically on cryptocurrencies, as the term “digital assets” is too broad in scope that members felt would only cloud the issue.

During that meeting, the board decided that the proposed standard would apply to those assets that:

  • Meet the GAAP definition of an intangible asset (which excludes financial assets);
  • Failing to provide the asset holder with enforceable rights or claims to the underlying goods, services or other assets (as with a contract);
  • They have been created, or reside on, a distributed ledger or “blockchain”;
  • They are secured through cryptography; and,
  • They are expendable.

Later, in his october meetingThe FASB decided that cryptocurrencies should be accounted for at fair value using the guidance in Topic 820, “Fair Value Measurement,” in contrast to the current more typical cost less impairment method.

The FASB believes that such an approach would better align the measurement of crypto assets with that of other assets used for investment purposes, such as financial instruments, which are also reported at fair value. The board believes that such an approach would also allow for alignment between entities that currently use specialized industry or regulatory guidance that requires fair value measurement.

During that meeting, the board also said that fair value reporting should be required, as there was little point in making it optional, considering that the FASB’s goal is to encourage uniformity in reporting. Similarly, the board uniformly agreed that there should be no exceptions for a dormant market where a particular token is not actively traded, such as being able to continue using the cost minus impairment model or being able to say fair value is 0.

Final adjustments before launch

Finally, at its most recent meeting in February, the FASB considered additional scoping questions, the role of “wrapped” tokens that effectively entitle someone to a certain amount of cryptocurrency (usually used for cross-blockchain transactions), the extent to which they should or should not specify the use of public blockchains, effective dates and methods of transition, and whether private companies should get more time.

On additional scope considerations, the board decided that the exposure draft would not specifically cover cryptocurrency issuers and creators and their related parties. Susan Cosper, a board member, said, echoing others who had also spoken, that the project never had these entities in mind anyway, so it was good to be explicit that they are excluded.

“On the subject of creators and broadcasters, I agree: as we’re moving forward on this, I don’t think it was my intention to include them, so it’s important to be explicit when excluding them in terms of scope,” he said.

However, the staff clarified that cryptocurrency miners would not count as creators or issuers and would therefore fall within the scope of the proposed standard.

Much of the debate was consumed with “wrapped tokens”. The board, after much discussion, agreed that they, too, should be outside the scope of the proposed standard, at least for now. Board member Jim Kroeker felt it would be best to exclude them because there are too many permutations to consider if they want to complete this project, and furthermore, the market for wrapped tokens is not yet large enough to be a major concern. anyway.

“Am I trading something asset-backed? Bitcoin itself isn’t asset-backed, but something wrapped means I now have the rights in a contract that entitles me to someone else’s assets, so it sounds like an asset-backed investment.” assets. Is it? An asset-backed security? An indexed receivable? I don’t know how we respond to that without knowing the terms of each individual contract. Is each thing involved an identical contract? Take my own thing and hold it in escrow and call it wrapped? Do they have to own the underlying asset?” he said, later adding: “The crypto market phenomenon wrapped up… the biggest one is $4 billion, the total market capitalization is less than $10 billion… There would be a lot more that I would need to expand this scope”.

For similar reasons, the board members said they shouldn’t specify whether something should be on a public blockchain because the term can be extremely broad and there would inevitably be issues with how they define it.

“I think adding the term ‘public’ would be very problematic. We don’t even know what a public blockchain really is in today’s world, so why bother trying to define it?” said board member Gary Buesser.

The board ultimately decided that early adoption should be permitted and that a cumulative effect adjustment to retained earnings (or other appropriate components of equity or net assets in the statement of financial position) would be recognized at the beginning of the first annual period in which it is adopted. The Guide. The FASB decided that all entities, including nonpublic entities, should be subject to the same transition and effective date requirements.


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