Navigating the FASB’s Crypto Asset Rules: Valuation and Reporting Implications
In December 2023, the Financial Accounting Standards Board (FASB) finalized Accounting Standards Update (ASU) 2023-08, which significantly changes how companies account for certain crypto assets. For the first time, qualifying digital assets must be measured at fair value with changes recognized in net income. This is a major shift from the historical cost model previously in place1.
For businesses and their advisors, this creates both opportunity and complexity. Accurately valuing crypto holdings, especially in volatile or illiquid markets, requires a structured, defensible approach that aligns with the updated financial reporting framework.
What Changed?
Under ASU 2023-08, effective for fiscal years beginning after December 15, 2024 (early adoption permitted), entities must:
- Measure crypto assets at fair value at each reporting date.
- Recognize changes in fair value in earnings, not other comprehensive income (OCI).
- Present crypto assets separately on the balance sheet.
- Disclose significant holdings, restrictions, and valuation techniques.
Why It Matters for CFOs and Auditors
Many companies previously held crypto at cost minus impairment, often understating economic value. The move to fair value not only increases volatility on the income statement but also introduces valuation risk, particularly for assets with limited observable market data.
Key questions companies must now answer include:
- What is the principal or most advantageous market for this asset? For example, is it a centralized exchange or an OTC desk?
- Is there sufficient volume and activity to consider quoted prices Level 12 under ASC 820?
- Even if an asset is traded, it may not have the volume necessary to be considered a Level 1 price. In such instances, valuation assistance is likely needed.
- If not, how do we develop reliable Level 23 or 34 inputs to support a fair value conclusion?
How to Implement
Companies should begin by identifying the nature of their crypto holdings and the markets in which they are traded. For assets that do not qualify for Level 1 pricing, valuation specialists at Withum can assist in developing appropriate models and inputs.
Valuation Considerations
Withum’s Valuation Services Team is already helping clients navigate these changes. Our services include:
- Identifying appropriate valuation techniques and inputs for Level 2 and 3 assets, including non-Bitcoin/ETH assets.
- Navigating the nuances of staking rewards, NFTs, and wrapped tokens.
- Providing supportable, auditable, fair value conclusions that align with audit scrutiny.
- Helping private companies prepare for early adoption or 2025 compliance.
While the rule applies to a specific subset of crypto assets, those that are fungible, intangible, and not securities or financial assets, it sets the stage for broader accounting modernization in the digital asset space. As this space continues to evolve, the benefit of engaging a crypto valuation specialist only grows.
Looking Ahead
For companies that hold, or are considering holding, crypto on their balance sheets, now is the time to evaluate valuation policies, internal controls, and financial statement disclosures. Fair value reporting will bring increased transparency but also increased scrutiny.
Author: Benjamin Rodriguez | [email protected]