FASB’s Proposed Guidance on Crypto Assets
In March 2023, the Financial Accounting Standards Board (FASB) released an exposure draft addressing the accounting treatment for certain crypto assets. This move was in response to investor and preparer demands for clearer guidance on this rapidly evolving asset class. The proposal received 82 comment letters, with stakeholders generally supporting the initiative but advocating for an expanded scope and clarification on certain presentation aspects.
On September 6, 2023, FASB reconvened to review feedback and finalize deliberations. To accelerate the release of guidance, only minor editorial changes were made to the proposal. Additional stakeholder suggestions may be revisited in a future project.
Scope of the New Guidance
The proposed guidance applies to all entities holding specified crypto assets. Eligible crypto assets must meet the following criteria:
- Qualify as intangible assets under the Codification Master Glossary.
- Do not confer enforceable rights or claims to underlying goods, services, or other assets. FASB clarified that “enforceable rights” is a term used in other accounting guidance and does not require a legal opinion, instead relying on management judgment.
- Exist on a distributed ledger or blockchain. The final Accounting Standards Update (ASU) will also reference “or similar technology” to accommodate future innovations.
- Be secured through cryptography.
- Be fungible.
- Not be created or issued by the reporting entity or its affiliates. FASB reaffirmed that miners receiving newly created crypto assets as compensation for their services are not considered the asset’s creators unless they have additional involvement in its creation. This topic may be explored further in a future project.
IRS Proposed Regulations on Digital Assets
On August 25, 2023, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) proposed regulations addressing the sale and exchange of digital assets by brokers. These regulations apply to both fungible and non fungible digital assets, including NFTs, and are aimed at enhancing tax compliance within the digital asset market. The proposal includes the following key measures:
- Requiring digital asset brokers to report specific sales and exchanges.
- Subjecting digital asset brokers to the same information-reporting rules that apply to brokers handling securities and other financial instruments.
- Extending reporting requirements to operators of certain decentralized exchanges, digital-asset-hosted wallet providers facilitating transactions, and individuals using digital assets to purchase real estate.
Under the proposed regulations, brokers would be required to issue a new Form 1099-DA to assist taxpayers in accurately determining their tax liabilities. This reporting requirement would take effect in 2026 for transactions occurring in 2025. The comment period for the proposal closes on October 30, 2023, with a public hearing scheduled for early November.
Conclusion
As regulatory frameworks for digital assets continue to evolve, these proposed changes from FASB and the IRS mark significant steps toward greater transparency and consistency in financial reporting and taxation. Entities involved in the crypto space should remain informed and prepare for potential adjustments in accounting and compliance practices.
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