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Is Your Company Holding Cryptocurrency or Other Digital Assets?

September 28, 2021

If so, you will want to read up on the current accounting treatment which has been followed by public and private companies holding digital assets. Let’s dive in.

An increasing number of businesses are holding and transacting with digital assets, mostly in the form of Cryptocurrency such as Bitcoin, Dogecoin or Ethereum. Cryptocurrency historically has been known for its volatility and lack of regulation; however, with the current market size and growing acceptance by large organizations, it may be something you have on your balance sheet at some point. How do you account for cryptocurrency? We have the details below.

AICPA Practice Aid

Currently, there is no specific authoritative guidance on accounting for digital assets; however, the American Institute of Certified Public Accountants (AICPA) has issued a practice aid which offers non-authoritative guidance. Below is an overview of the current accounting treatment which has been followed by public and private companies holding digital assets, based on the AICPA’s practice aid.

What counts as a digital asset?

A digital asset is any piece of content stored digitally. This includes photos, videos, files containing text, spreadsheets, graphics, PDFs and cryptocurrency.

What is the general accounting treatment for digital assets? *

Most digital assets meet the definition of an indefinite-lived intangible asset and therefore will be accounted for following the guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Intangibles – Goodwill and Other.

Following FASB ASC 350, digital assets purchased for cash are initially measured at cost.

Subsequent to the acquisition of a digital asset, an entity should assess the digital asset for impairment when events or changes in circumstances indicate it is more likely than not that the carrying value of the digital asset exceeds its fair value. When an identical digital asset is bought and sold at a price below the current carrying value, this will often serve as an indicator that impairment is more likely than not, hence an impairment charge should be recorded.

Pursuant to FASB ASC 350-30-35-20, subsequent reversal of previously recorded impairment losses on indefinite-lived intangible assets is prohibited. This provision applies even if the fair value of the digital asset recovers above the original carrying value within the same accounting period.

What other accounting principles may apply to digital assets?

If digital assets are received in exchange for services, entities should consider FASB ASC 606 to determine the transaction price following the noncash consideration guidance.

When selling digital assets, a business first needs to determine if the counterparty to the sale is a customer or not.

  • If the counterparty is a customer, an entity should account for the sale under FASB ASC 606 and present the sale as revenue when control of the digital assets sold has transferred.
  • If the counterparty is not a customer, an entity should account for the sale under FASB ASC 610-20, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets, or FASB ASC 845, Nonmonetary Transactions, depending on the nature of the transfer.

Certain digital assets known as stablecoins may meet the definition of a cash and cash equivalent under FASB ASC 230-10-20, depending on the facts and circumstances.

What unique implementation considerations are there for establishing an accounting policy for digital assets?

Determining the unit of account and frequency of impairment testing will be important to maintain consistency in financial reporting. As an organization’s volume of transactions with digital assets increases, the tracking of carrying value can become increasingly difficult. Establishing a system for tracking the carrying value of digital assets held should be an early priority.

The market for digital assets is open 24/7; therefore, an organization must establish a consistent policy for determining cut-off for proper reporting.

Questions on accounting for crypto? Reach out to us here.

*Entities following FASB ASC 946: Financial Services – Investment Companies will account for digital assets as an investment, following the guidance in FASB ASC 946-320

October is Cybersecurity Awareness Month! We’ll be sharing information throughout the month of October regarding your cybersecurity. Plus, we’re hosting two webinars. Register for our webinars here:

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