Author: Dr. Gerard (Rod) Brennan; Dir. Audit Technologies for Lukka & Adjunct Professor Teaching Advanced Audit and Information Technology in the Rutgers Professional Accounting MBA Program; Rutgers Business School; Newark, New Jersey.
The statements in this document should not be treated as legal, tax, or accounting advice. The document is intended to provide general information only. If a person would like such advice, they should seek professional advice with regard to their specific facts.
The statements in this document reflect guidance issued as of February 6, 2020.
Current Guidance on Accounting for Crypto Assets
As of the date of this writing, there remains very little codified or non-authoritative guidance from US or international accounting regulators/standard setters for the classification and accounting treatment of cryptocurrencies/crypto assets. There remains, however, existing guidance that can be carefully applied to the economic phenomenon of cryptocurrencies to provide relevant non-authoritative guidance for practitioners transacting in cryptocurrencies. One of these areas is valuation and specifically the valuation of restricted assets using fair value accounting (FVA) as described in the FASB’s ASC 820 and in IASB’s IFRS 13. This paper assumes that the practitioner or advisor has already settled on the use of fair value accounting for transactions with actively traded cryptocurrencies – a detailed discussion of FVA for crypto assets in the absence of codified guidance is beyond the scope of this paper, but is addressed in other documents by the author and others. It is important, however, that individuals or entities transacting and reporting in crypto assets make a good faith effort to align as closely as possible with existing standards/guidance for similar assets and explain/disclose elected positions.
Fair value accounting principles under US GAAP (ASC-820) and IFRS (IFRS 13) provide the US and International entities with specific guidance on how to mark to market (i.e. value or price) certain types of assets. US and international accounting guidance is largely converged, defining the guidelines, inputs, and required disclosures for fair value measurements. These specific standards do not establish requirements for when fair value is required or permitted, but only how fair value should be measured once established as an appropriate valuation method. Actively traded crypto assets lend themselves to the application of the above FVA guidance, because there are generally large volumes of observable transactions/prices in principle crypto markets. Like securities and other financial assets addressed more directly by the US and international standards, crypto assets may have similar restrictions on them which impact how FVA should be applied.
The FVA guidance found in ASC 820-10-35 (IFRS 13.11) discusses the impact of restrictions on the sale or transfer of an asset (securities referenced as an example). The guidance makes a distinction in calculating fair value if the restriction is an attribute of the asset (i.e., “Security Restriction”) or if the restriction is an attribute of the holder of the asset (i.e., “Entity Restriction”). Factors that may be used to evaluate whether a restriction is security-specific or entity-specific may include:
- How is the asset transferred to an interested party?