As of 2022, it is safe to say we have all heard of “cryptocurrency.” In fact, many companies are already invested through their investment portfolio. The fast-moving and everchanging world of cryptocurrency has gained significant popularity in recent years and has grabbed the attention of investors around the world. However, this industry is still new and there are many unknowns when it comes to accounting for digital assets. In this article, we will discuss the current accounting treatment for cryptocurrency, as well as some potential new guidance that is on the horizon.
The accounting for cryptocurrency is driven by its definition within the accounting literature. According to the Financial Accounting Standards Board (FASB) Master Glossary, a financial asset is:
Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following:
- Receive cash or another financial instrument from a second entity
- Exchange other financial instruments on potentially favorable terms with the second entity.
As such, cryptocurrency is not a financial asset. But what is it?
The FASB Master Glossary defines an intangible asset as an “assets (not including financial assets) that lack physical substance.
Cryptocurrency meets the definition of an intangible asset and would be accounted for as other intangible assets. As such, companies with cryptocurrency should measure it in the financial statements at historical cost less impairment.
There is an exception on the treatment however for broker-dealers and investment companies. These entities should report cryptocurrency at fair value and record any changes through earnings for each reporting period.
Looking Ahead
Earlier this year, the FASB announced a new project to address certain digital assets. In August 2022, the FASB further shared that the project would apply to “fungible digital assets” (bitcoin/ether). They also shared that they will be including guidance for all entities, including broker-dealers and investment companies to provide consistency on the overall accounting and reporting within financial statements.
This guidance is still in development, and we will continue to monitor and keep you informed of developments.
If you have any questions or are interested in learning more about this topic, we are here to help. Please do not hesitate to reach out to our trusted experts today.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
