In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, Accounting for and Disclosure of Crypto Assets. As more organizations are investing (or considering investing) in cryptocurrencies, this ASU looks to improve the accounting for and disclosure of crypto assets. The new guidance requires organizations (including not-for-profit entities) to measure certain crypto assets at fair value and record the changes in fair value in net income in each reporting period.
Prior to this ASU, the assets were measured at historical cost less impairment as they were accounted for as indefinite-lived intangible assets in accordance with Accounting Standards Codification (ASC) 350. Many stakeholders of organizations believed that this accounting did not properly represent the economics of crypto assets.
Key Criteria for Crypto Assets Under ASU 2023-08
This guidance applies to certain crypto assets that meet the following criteria:
- Meet the definition of intangible assets as defined in the ASC
- 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 based on blockchain or similar technology
- Are secured through cryptography
- Are fungible
- Are not created or issued by the reporting entity or its related parties
ASU 2023-08 also requires organizations to present crypto assets separately from other intangible assets on the statement of financial position.
Other disclosure requirements include the following:
- For each significant crypto asset:
- Name of crypto asset
- Cost basis
- Fair value
- Number of units held
- For crypto asset holds that are not individually significant:
- Aggregated cost bases
- Aggregated fair values
- Method used to determine its cost basis for computing gains and losses
- Line item in which gains and losses are reported (if not presented separately)
- Reconciliation of activity from the opening to the closing balances of crypto assets
- Additions
- Dispositions
- Gains included in net income for the period, determined on a crypto-asset-by-crypto-asset basis. Each crypto asset that has a net gain from remeasurement should be included in the gains line.
- Losses included in net income for the period, determined on a crypto-asset-by-crypto-asset basis. Each crypto asset that has a net loss from remeasurement should be included in the gains line.
- Description of the nature of activities that result in additions (such as purchases, receipts from donors, etc.) and dispositions (such as sales or use as payment to vendors)
- Total amount of cumulative realized gains and cumulative realized losses from dispositions that occurred during the period
- For crypto assets subject to contractual sale restrictions:
- Fair value of the relevant crypto assets
- Nature and remaining duration of the restrictions
- Circumstances that could cause the restriction to lapse
If an organization receives a crypto asset as payment for service or as a contribution and nearly immediately (meaning hours or a few days) converts it into cash, this asset is not required to be included in the disclosures of #5-7 above and should be included in the operating cash flow section. However, if the contribution of the crypto asset is restricted to a long-term purpose, the cash receipts should be classified as a financing activity.
Effective Date and Adoption Guidelines
ASU 2023-08 is effective for all entities for fiscal years beginning after December 15, 2024. Early adoption is permitted. When adopting this ASU, organizations should recognize the cumulative effect of applying the standard as an adjustment to the opening balance of net assets as of the beginning of the annual reporting period in which the organization first applies this standard. This adjustment should be calculated as the difference between the carrying amount of the crypto assets as of the end of the prior annual reporting period and the fair value of those crypto assets as of the beginning of the annual reporting period.
Further Guidance for Your Not-for-Profit Organization
If you have any questions or would like to discuss how this ASU may impact your organization, please reach out to Katie Galaska, Director, Audit & Accounting.