Up to the Minute Benchmark Rate Reform, Crypto Assets and Software Costs Oh My!

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Bonnie Mann Falk, Partner

30.01.23 | insurance cat

The FASB has been busy in the last quarter of the year! We wanted to give you some updates on previously covered topics.

ASU Reference Rate Reform 2022-06

In April 2021, we gave you BOTTOM LINE IT FOR ME – WHAT SHOULD I KNOW ABOUT LIBOR DISAPPEARING? covering the steps to be taken to address the reform of the benchmark rate. Since the 1, 3, 6 and 12 month terms of USD LIBOR will end on June 30, 2023, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, effective upon issuance. The FASB has extended the expiration date of ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, from December 31, 2022 to December 31, 2024. Any changes due to changes in the reference rate that occur in 2023 or 2024 will still be able to apply the relief.

Tentative Rulings on Crypto Assets1

In May 2022, we presented to you a summary of generally accepted accounting principles on accounting for digital assets in BASELINE GAAP FOR DIGITAL ASSETS. After a joint FASB/IASB educational meeting on September 30, 2022, the FASB met on October 12, 2022 and made decisions regarding the accounting and disclosure of crypto assets that meet the criteria defined at the August 31, 2022 meeting These criteria are as follows: (a) Meet the definition of an intangible asset as defined in the main Glossary of the [FASB] Codification; (b) do not give the asset holder enforceable rights or claims in the underlying goods, services or other assets; (c) are created or reside on a distributed ledger or blockchain; (d) are cryptographically secure; (e) are fungible.2

All entities are now required to:

1. Measure crypto assets at fair value, using the guidelines in Topic 820, Fair Value Measurement.2. Recognize increases and decreases in fair value in comprehensive income each reporting period.3. Recognize certain costs incurred to acquire crypto assets, such as commissions, as expenses (unless the entity follows specialized industry valuation guidelines that require otherwise)3.

Additional implementation guidance or various measurement alternatives for crypto assets with inactive markets will not be pursued at this time. The transition, presentation and disclosure will be discussed at a future meeting. Stay tuned!

Software Costs Interim Decisions

In February 2022, we gave you a side-by-side overview of accounting for software development costs according to generally accepted accounting principles and tax bases in LOVE IS COMPLEX AND ACCOUNTING FOR SOFTWARE DEVELOPMENT COST IS ALSO. The FASB continued discussions on the topic at its January 18, 2023 meeting and will conduct further research on software cost accounting and disclosure. Two models, the initial development cost model and a dual model, are under study. The initial development cost model requires the capitalization of all direct software development and enhancement costs when it is probable that the software project will be completed and used for its intended function. All costs incurred beyond that point and for maintenance would be expensed as incurred. The dual model provides for certain costs, which have not yet been defined, to be expensed as they are incurred, while other costs would follow the initial development cost model. The continuous development model, where all software development and maintenance costs would be capitalized, and the expense model, where all software development and acquisition costs would be expensed as ‘they are engaged, are now discarded. More soon!

Questions? I can be reached at 516.806.1193 | [email protected] or contact your Berdon advisor.

Bonnie Mann Falk is a partner on Berdon’s Professional Practice and Quality Management (PPQM) team with over 30 years of experience in public accounting and expertise in a variety of areas including quality management, compliance and risk management. As a PPQM partner, Bonnie advises the firm on policies and procedures to improve quality, efficiency and communication.

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1 On the FASB website: The Board’s draft decisions are provided to those interested in following the Board’s deliberations. All decisions reported are provisional and subject to change at future Board meetings.

2FASB October 12, 2022, Board Meeting Document

3FASB October 12, 2022 Board Meeting Draft Board Decisions

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