Crypto Currency Accounting Changes for Not-for-Profits
Has the Financial Accounting Standards Board (FASB) just saved us from unfavorable accounting? On October 12, 2022, the FASB issued a board ruling that certain crypto assets should be measured at fair value.
Who’s Affected by This Ruling?
This ruling applies to all entities, public and private, who are currently holding or are considering investments in crypto assets. It was decided that measurement and recognition requirements will not differ between types of entities.
What Are the Criteria for an Item To Be Considered a Crypto Asset?
Based on decisions made by the FASB at a meeting held earlier this year on August 31, crypto assets that meet the following criteria will be subject to this most recent ruling and any that follow:
- Meet the US GAAP definition of intangible asset
- Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
- Are created or reside on a distributed ledger or “blockchain”
- Are secured through cryptography
- Are fungible
What Was FASB’s October 12th Ruling?
- The Board has decided that crypto assets should be measured at fair value, using the guidance in Topic 820, Fair Value Measurement.
- Changes in fair value (gains or losses) are to be recorded as part of comprehensive income in the current reporting period. Not-for-profit organizations present the gains and losses in different locations on the financial statement, therefore, the treatment will need to be consistent with your organization policy if you use an operating measure (for example, present items of comprehensive income in nonoperating or nonrecurring income and expenses).
- Certain costs, such as commissions and transactions fees, incurred to acquire crypto assets should be recognized as expenses as they are incurred (unless the entity follows specialized industry measurement guidance that requires otherwise).
- The Board will not pursue measurement alternatives for crypto assets in inactive markets.
- The Board will not provide additional guidance for the fair value measurement of crypto assets.
Check Out Civic Warriors’ Crypto-Based Episodes
- Insight on Cryptocurrency With The Giving Block
- Understanding the Importance of Crypto Donations With Engiven
- Accepting Non Fungible Token (NFT) Donations With Sostento
What Does This Ruling Mean for Your Entity/Organization?
With the above ruling, entities/organizations will be required to recognize current period gains and losses on their crypto assets. This will allow for entities/organizations to present a more realistic financial statement, showing the current value of their crypto assets as opposed to only changing the value upon impairment or sale as was the case with the former intangible asset treatment.Crypto assets will be treated similarly to equity securities, written up when the value rises and showing a decrease when the market declines.
What Should You Keep an Eye Out For?
The FASB has yet to make a decision regarding presentation, disclosure, and transition, but has plans to consider doing so at a future meeting. This was a “board ruling” and there is no authoritative guidance yet. Clients must still apply ASC 350 (intangible asset classification) until there is formal accounting guidance but they are trending in the right direction. It is unknown when they expect to issue formal guidance. Please be alert for future communications on this topic.
Author: John Fijol | [email protected]