FASB Board Decisions with comments

TENTATIVE BOARD DECISIONS

Tentative Board decisions are provided for?those interested in?following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

Wednesday, September 6, 2023 FASB Board Meeting Accounting for and disclosure of crypto assets. The Board discussed comment letter feedback and issues for redeliberations on the proposed Accounting Standards Update,?Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets.

Scope

The Board affirmed the scope of the proposed Accounting Standards Update, which would apply to holdings of crypto assets that meet all of the following criteria: ?

1. Meet the definition of?intangible assets?as defined in the Codification Master Glossary
2. Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
3. Are created or reside on a distributed ledger based on blockchain technology
4. Are secured through cryptography
5. Are fungible
6. Are not created or issued by the reporting entity or its related parties.

The Board decided to modify criterion (c) to include assets that are created or reside on a distributed ledger based on technology that is similar to blockchain technology.

Discussions around wrapped tokens dominated ~17% of the meeting. I found it interesting not to be discussed in the formal meeting notes. Staff recommendation to include wrapped tokens in scope; alternative C. Many board members were in agreement with the staff, however those in disagreement outweighed. The overall decision was to exclude from the scope and go with alternative A. They see wrapped tokens as a derivative of an asset and expanding outside of the narrow scope of this project. - JR

Additional thoughts: Many companies currently treat wrapping a token as a non-taxible event. There are many strong arguments for doing so. If companies must track wrapped tokens at cost, with no option to also report with fair value, it will certainly add significant changes to taxable vs. non-taxable events for companies. - JR

Measurement

The Board affirmed the proposed requirements that an entity subsequently measure crypto assets within the proposed scope at fair value in accordance with Topic 820, Fair Value Measurement. The Board decided to not provide guidance on how to recognize costs to acquire crypto assets, such as commissions and other related transaction fees. The Board affirmed its decision to not include additional measurement guidance on the application of Topic 820 for crypto assets.

Measuring at fair value was no shock. The last-minute decision not to provide guidance on how to recognize costs was. The board was at first in full favor of expensing costs immediately, however in the later half of the meeting measurement topic #5 was readdressed and quickly a unanimous decision to remain silent was made. It was deemed the overall impacts were immaterial and not did not need the board's decision to move forward in either direction. Handle your expenses as you please! - JR

Presentation

The Board affirmed the proposed requirements that for crypto assets within the proposed scope an entity: ?

1. At a minimum, present the aggregate amount of crypto assets separately from other intangible assets that are measured using other measurement bases
2. Present gains and losses on crypto assets in net income and present those gains and losses separately from the income statement effects of other intangible assets, such as amortization or impairments

1. Classify crypto assets received as noncash consideration during the ordinary course of business that are converted nearly immediately into cash as operating cash flows.

The Board decided to clarify that a not-for-profit organization that nearly immediately liquidates crypto assets received with donor-imposed restrictions for long-term or capital use would be required to classify that activity as cash flows from financing activities. The Board decided to not provide incremental guidance on whether to classify crypto assets as current or noncurrent assets in a classified balance sheet. The Board decided to not provide additional guidance on the presentation of gains and losses from crypto assets in the income statement.

This was an interesting turn in the meeting regarding not-for-profits with everyone in full agreement. Often times decisions do not change (wrapped tokens), and was insightful to see how comments are very welcomed for changes. -JR

Disclosure

The Board affirmed the proposed requirements, which would require that an entity disclose: ?

1. At both annual and interim periods, the following information about each significant crypto asset holding (as determined by the fair value of that holding): the name of the crypto asset, fair value, units held, and cost basis. Additionally, an entity would disclose the fair value and cost basis of other crypto asset holdings, which may be aggregated into a single line item.
2. At both interim and annual periods, the fair value of the crypto assets that are restricted from sale, the nature and remaining duration of the restriction, and circumstances that could cause a lapse in the restriction(s).

The Board affirmed the proposed requirement that would require that an entity disclose at annual periods a reconciliation, as described in paragraphs 350-60-50-3 through 50-4 of the proposed Update. However, the Board decided that an entity need not include activity related to crypto assets received as noncash consideration in the ordinary course of business and converted nearly immediately into cash in that disclosure. The Board affirmed its decision to not require other additional disclosures.

The reconciliation, or asset roll-forward as most in the crypto space know it, is another great addition to the disclosures. I would recommend companies to perform this during interim periods - it will enhance controls and the analysis of company performance. Commentary on significant moves would be a plus. Overall these three additional disclosure requirements are perfect steps to help the investing community, and management within a company, better understand their financials. -JR

Transition

The Board affirmed the proposed transition requirements, which would require that an entity make a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the annual period in which the guidance is adopted.

Effective Date and Early Adoption

The Board decided that the final Update should be effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, for all entities. The Board also affirmed the proposed requirement to permit early adoption.

This buys companies time to implement, but the board also sees many taking early adoption to simply reporting. Most are reporting both ways currently - let's make the change sooner rather than later! We need to anxiously wait to see when early adoption will be permitted. -JR

Cost Benefit

The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs and expected benefits of the amendments and that the expected benefits of those amendments would justify the expected costs. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

Cryptio has already implemented these changes

At Cryptio we've been working on the FMV solutions for over 6 months. We already support crypto investment companies needing to report daily FMV reporting. The asset roll-forward and a significant asset report (or one that fulfills the needs) are already part of our reporting suite.

Don't sweat the changes proposed by the FASB. Reach out to Cryptio for help in the transition. We have a solid playbook to ensure your company will easily handle all aspects of this new reporting requirement.