Crypto Fair Value Accounting Under FASB ASU 2023-08

For years, US GAAP produced crypto balance sheets that everyone agreed were wrong. Digital assets were accounted for as indefinite lived intangibles, which meant an entity wrote the carrying amount down when the price fell and could not write it back up when the price recovered. A holder whose position had fully recovered still carried it at the bottom of the trough.

ASU 2023-08 fixed that, and in doing so it created a sharper divide between assets inside its scope and assets outside it.

What it did

The standard added Subtopic 350-60 to the codification. In-scope crypto assets are measured at fair value, with changes recognised in net income each period. Presentation and disclosure requirements accompany it, including separate presentation of in-scope crypto assets and disclosure of significant holdings and reconciliation of activity.

The practical result is that gains and losses are now symmetric, and reported holdings reflect what the assets are worth rather than the worst point since acquisition.

Scope is the whole exercise

The change only helps you if your asset qualifies, and the criteria are cumulative. An in-scope asset must, broadly, meet the definition of an intangible asset, be fungible, be secured through cryptography, reside on a distributed ledger, not provide the holder with enforceable rights to or claims on underlying goods, services or other assets, and not be created or issued by the reporting entity or its related parties.

Those conditions matter more than the headline. Work through them and a large amount of what companies hold falls out:

• NFTs fail fungibility. They stay on the old path, with impairment and no recovery.
• Tokens conveying enforceable rights or claims fail that criterion, which is a question to ask about wrapped assets, receipt tokens and anything representing a claim on a deposit rather than a bearer asset.
• Self issued tokens are excluded. An entity that issued its own token does not fair value its holding of it under this subtopic, which is exactly the case where a mark to market number would have been least meaningful anyway.

So an entity holding bitcoin, an NFT collection and its own governance token is applying two different models at once, and must be able to say why each holding sits where it does.

Fair value still has to be measured

Moving to fair value moves the difficulty rather than removing it. Measurement follows the existing fair value framework and its input hierarchy, so the questions become: which market is the principal market for this asset, what is the price at the measurement date in that market, and how is a thinly traded asset handled.

Entities holding only large liquid assets find this straightforward. Entities holding long tail tokens find that in-scope does not mean easy, because an observable price in an active market is exactly what a long tail token lacks.

What auditors ask

• Documented scope assessment per asset, against each criterion, retained rather than reasoned afresh each period.
• The principal market determination and why it is the principal market.
• Price source and measurement time convention, applied consistently.
• Existence and control evidence at the measurement date, meaning proof the entity controls the addresses, not just a balance screenshot.
• The activity reconciliation supporting the disclosures.

What it did not change

ASU 2023-08 is a US GAAP measurement standard. It does not change tax treatment, which follows its own rules and is not driven by book carrying amounts. It does not change IFRS, where the analysis still generally runs through IAS 38 or IAS 2. And it does not change custody or control requirements, which are an audit question rather than a measurement one.

Our crypto accounting guide covers the framework choices, and financial statements covers presentation and disclosure.

General information, not accounting or audit advice. Confirm the current requirements of the applicable standards with your auditor or a qualified accountant.