NFT Accounting for Businesses: Recognition and Measurement

Most crypto accounting content now starts from fair value, because that is where fungible crypto assets ended up under US GAAP. NFTs are the reason that shortcut fails. Their defining feature is non fungibility, and the scope criteria that brought fungible crypto onto a fair value basis generally do not reach them.

So NFT accounting is not a variation on token accounting. It is the harder, older problem, and it has to be worked from classification upward.

Start with what the entity is doing with it

The same NFT produces different accounting depending on the holder's business model, and this is not a loophole, it is how asset classification is supposed to work.

• Held for sale in the ordinary course of business. A marketplace or a trading business is looking at inventory, with the broker-trader considerations that follow.
• Held for use or for its associated rights. This points toward an intangible asset, with a finite or indefinite useful life determination that is genuinely difficult for an asset whose utility depends on a platform continuing to exist.
• Self created and minted for sale. The costs of creating it and the revenue from selling it are separate questions, and the second is a contract with a customer.
• Received as consideration. Non cash consideration, measured at fair value, with all the difficulty that implies.

The valuation problem is the real problem

Every route above eventually requires a value, and this is where NFTs are structurally worse than fungible assets.

Under the IFRS 13 hierarchy, or its US GAAP equivalent, a fungible token trading continuously on deep venues has an observable input. A specific NFT usually does not. What exists instead is a last sale that may be months old, floor prices for a collection that say little about a specific item, thin volume, and wash trading that can make observed prices unreliable as evidence of anything.

Practically this means most NFT valuations land in the unobservable tier, requiring documented technique, documented inputs, and disclosure. Treating a collection floor price as a market price for a specific token is the most common error in this area, and it will not survive an audit.

Royalties

Creator royalties on secondary sales are a distinct stream and they need their own analysis. Two features make them awkward: they are contingent on future third party transactions the creator does not control, and they are increasingly not enforceable at the protocol level, since whether a marketplace honours them is a policy choice rather than a contractual right.

An entity recognising a royalty asset or a receivable for expected future royalties has to be able to defend the enforceability of the underlying right. Where royalties are honoured voluntarily, recognition on receipt is the conservative position and usually the defensible one.

Minting costs

Gas paid to mint, platform fees and the cost of producing the underlying work are directly attributable costs whose treatment follows the classification. Costs of inventory are capitalised into inventory. Costs of an internally generated intangible face the recognition restrictions that apply to internally generated intangibles generally, which are strict.

Impairment and reversal

For an intangible carried at cost, impairment testing applies with the framework's own rules on when a reversal is permitted. This is precisely the asymmetry that motivated the move to fair value for fungible crypto, and because NFTs generally sit outside that move, the asymmetry stays with them: write downs are recognised, recoveries frequently are not.

Records that make the position auditable

• Token contract address and token ID for every holding. Names and images are not identifiers.
• Acquisition cost including gas, and the wallet that holds it, with proof of control.
• The valuation technique and inputs used at each reporting date, retained rather than recomputed later.
• Royalty terms per collection and evidence of what was actually received.

Our crypto sub ledger covers holding the underlying records at token level, and crypto accounting covers the framework choices around it.

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