FASB Mandate Disclosure Requires for Digital Assets to be Measured at Fair Value

Following the Financial Accounting Standards Board’s (FASB’s) Accounting Standards Update ASU 2023-08 in August 2023, which addresses accounting and required disclosures for digital assets, digital assets will now be mandated to be measured at fair value at the reporting date in accordance with the principles and disclosures of Topic 820, Fair Value Measurement, to standardize the treatment of digital assets under GAAP.  

The FASB issued this update as part of its ongoing efforts to provide transparency and guidance to financial statement users so that pertinent information related to digital assets is disclosed in hopes of assisting with their investment decisions. The ASU mainly impacts companies investing or operating in the digital asset space that fall under the scope of ASC 350-60-15-1. As the digital asset world is rapidly evolving, firms that are holding these assets will be required to provide clarity.  

Disclosure Requirements and Guidelines 

Holders of certain digital assets will be required to provide additional disclosures about fair value measurement, including the technique and inputs used in valuing the respective asset, along with the risks that are associated with holding these types of assets. Specifically, when disclosing the valuation technique used, the entity must also include its rationale for selecting that method and any assumptions or inputs used. These enhanced disclosure requirements are intended to provide investors and financial statement users with better transparency into the entity’s exposure to digital assets. Ultimately, standardizing digital asset disclosures will allow for comparability across financial statements.  

Considerations  

There are a handful of considerations that digital asset holders need to consider with the new disclosures. Firms should follow Topic 820’s guidance when deciding which primary market should be referenced to value the exit price of its holdings. Entities in the digital asset space are encouraged to document their process when it comes to fairly valuing these types of assets, including how they identified the markets. Because of the rapid evolution of crypto assets, there may be a lack of consistency in the information regarding the characteristics of different crypto asset markets, making it even more difficult to identify a principal market. Another consideration is related to the custody and control of cryptocurrency, as this can impact the valuation and disclosure requirements.       

Effective Date and Transition  

 ASU 2023-08 is effective for all entities for annual periods beginning after December 15, 2023, and interim periods within those annual periods. Early adoption is permitted. Entities involved in transacting or holding digital assets will need to assess the implications of these updates on their financial reporting.  

This update emphasizes the need for transparency and uniformity in financial reporting on these types of assets, which will, in turn, facilitate better decision-making by financial statement users.  

Entities are required to record the cumulative effect or adjustment to their retained earnings as of the beginning of the annual period in which they adopted this ASU. Therefore, it is important to review the implications prior to making the adjustments to their opening balances.  

For more, refer to the ASU 2023-08.