Author: Suzanne Morsfield, Global Head of Accounting Solution
In May, 2022, the FASB voted unanimously to add a standard-setting project to its technical agenda on accounting for crypto assets, with a decision about the exact scope of the project to be decided at a later meeting. The Board was not in favor at that stage of a “fair value option”, but instead the majority advocated for a fuller set of deliberations and decisions that would establish a valuation approach applicable to all the crypto assets ultimately decided to be within the scope of the project.
The next step in this process occurred today. The Board meeting addressed decisions about the exact scope of the standard-setting project. The Board voted unanimously again to establish the scope for the crypto assets covered, and the initial framework appears to be as follows (all of the following must be true):
The item voted on by FASB:
(a) is created or resides on a distributed ledger or blockchain;
(b) is secured through cryptography;
(c) meets the Accounting Standards Codification Master Glossary (Master Glossary) definition of an intangible asset;
(d) does not represent a contract as defined in the Master Glossary; and
(e) is fungible.
(the Board meeting handout is linked here)
Some select observations from today’s meeting are:
Today’s vote was solely to establish the scope of the project, and was not intended to speak to future recognition, measurement, or presentation outcomes of the project;
- The scope:
- meets requests during outreach to begin with a narrowly-defined project;
- excludes NFTs, as well as any crypto assets that may already be addressable within the existing Codification topics that cover items classified as financial assets or securities, for example;
- is expected to apply to all types of reporting entities;
- There were questions about possibly later refining or clarifying the criterion to exclude crypto assets that meet the definition of a contract;
- Some asked whether it would be better to focus more clearly on excluding crypto assets that grant claims to underlying assets, or to goods or services;
- One Board member noted that the scope includes those crypto assets for which the accounting does not equal the underlying economics, and excludes those crypto assets for which the current accounting is not problematic (in their view); and
- There was support for renaming the project from digital assets to crypto assets, now that the scope clearly focuses on a set of crypto assets.
In May, Lukka welcomed the Board’s decision to add this project to their agenda. We also continue to support the importance of high quality, authoritative standards that do not stifle innovation. Today, we reiterate that capital market participants ultimately will benefit from relatively more relevant and decision-useful information than is often provided under current interpretations of the now applicable authoritative standards. It is never a question of whether we like or don’t like a given set of standards or proposals, but rather the quality of the information provided to users of financial statements to best assess the amount, timing and uncertainty of future cash flows is paramount.
Lukka is committed to authoritative standards and regulations that do not inadvertently stifle innovation, and will readily support our customers’ compliance with US GAAP and SEC reporting requirements, regardless of the direction and timing of standard-setting that follows from the Board’s decisions. We also applaud the quality of FASB staff’s work and the Board’s discussions.
We will always support standard-setters and the standard-setting process in whatever ways we can. As a practical matter, Lukka’s Reference Data and LDACS will allow users of our data to filter on the above scope characteristics to better understand the exact set of crypto assets that will likely fall within the newly-defined scope of the project.
About Lukka
Lukka is a firm that helps solve some of the greatest financial challenges in crypto and has the intellectual resources, along with the data and processing capabilities, to test hypothetical scenarios like the one here. For more information on how Lukka puts data to work across multiple finance sectors, traditional and decentralized, supporting industries from insurance to Formula E, go to our website at Lukka.tech
DISCLAIMER
THE INFORMATION CONTAINED IN THIS BULLETIN PROVIDES ONLY A GENERAL OVERVIEW OF CURRENT ACCOUNTING ISSUES RELATED TO US GAAP, FASB STANDARDS AND CRYPTO ASSET HOLDINGS AND SHALL IN NO EVENT BE CONSTRUED AS THE RENDERING BY LUKKA OF PROFESSIONAL ADVICE OR SERVICES. AS SUCH, THE INFORMATION PROVIDED IN THIS BULLETIN SHOULD NOT BE USED BY YOU AS A SUBSTITUTE FOR CONSULTATION WITH PROFESSIONAL ADVISORS. BEFORE MAKING ANY DECISION OR TAKING ANY ACTION REGARDING YOUR DIGITAL CURRENCIES OR THE ACCOUNTING TREATMENT THEREOF, YOU SHOULD ALWAYS CONSULT WITH AN APPROPRIATE, LICENSED TAX, ACCOUNTING, OR OTHER PROFESSIONAL. TO THE FULLEST EXTENT PERMITTED BY LAW, IN NO EVENT WILL LUKKA(INCLUDING ITS RELATED ENTITIES, OWNERS, AGENTS, DIRECTORS, OFFICERS, ADVISORS, OR EMPLOYEES) BE LIABLE TO ANY READER OF THIS BULLETIN OR ANYONE ELSE FOR ANY DIRECT, INDIRECT, OR CONSEQUENTIAL LOSS OR LOSS OF PROFIT ARISING FROM THE USE OF THIS BULLETIN, ITS CONTENTS, ITS OMISSIONS, RELIANCE ON THE INFORMATION CONTAINED WITHIN IT, OR ON OPINIONS COMMUNICATED IN RELATION THERETO OR OTHERWISE ARISING IN CONNECTION THEREWITH.
