Separate Disclosure Requirements for Cryptography

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The Financial Accounting Standards Board recently issued an interim board decision to require companies to disclose crypto assets in 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 builds on October’s interim decision to report crypto holdings at fair value.

Required disclosures

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

Holding of crypto assets: Entities must disclose, annually and at interim periods, the name of the crypto asset, the fair value, the units held and the cost basis. The fair value and cost basis of crypto asset portfolios can be aggregated into a single line item. Annual reconciliation: Entities must publish an annual reconciliation of activities disaggregated by additions, disposals, gains and losses with a description of the additions and disposals. The disclosure must also include the difference between the selling price of the crypto assets and the cost basis when disposing of the asset. Fair value of restricted assets: Entities must disclose, annually and at interim periods, the fair value of crypto assets that are restricted from sale, the nature and remaining term of the restriction, and the circumstances that could lead to an interruption of the sale. restriction.

The FASB also claimed that disclosures in Topic 820, Fair Value Measurement, would be required for crypto assets under this project. This information would be required for the annual and interim periods.

The FASB also decided that investment companies and not-for-profit entities must present their financial statements in accordance with the presentation requirements of Topic 946, Financial ServicesInvestment Companies and Topic 958, Non-for-Profit Entities.

Notably, the FASB has not approved disclosure requirements for unrealized gains and losses; the nature and purpose of the crypto assets; the holder of the cryptographic private key information and the fair values ​​of the associated asset; or the time, time zone, and date that pricing information was obtained to measure the value of an entity’s crypto assets.

Transition period

Entities would be required to apply the disclosures 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 disclosures about the nature and the reason for the change in accounting principle.

Evolution of FASB guidance

The decision to separately disclose crypto assets is the latest step in the FASB’s Crypto Asset Accounting and Disclosure Project. The FASB recently added accounting and reporting of exchange-traded digital assets and exchange-traded commodities to its program, beginning with its research program in December 2021 and its technical program in May 2022. In August 2022, the FASB has issued an interim decision on the project scope criteria. The FASB then issued an interim ruling in October to require an assessment of the fair value of crypto assets. With the most recent decision, the FASB asked its staff to draft a proposal to update the accounting standards for a vote by written ballot with a 60-day comment period.

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2023

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