The Financial Accounting Standards Board decided during a meeting Wednesday to add a project to its technical agenda related to the accounting for cryptocurrency asset transfers.
The project will include expanding the scope of an existing standard from 2023 on crypto assets to address wrapped tokens and receipt tokens, as well as clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
During a meeting last month, FASB decided to add to its technical agenda a project on the classification of certain digital assets as cash equivalents and recently added a project on accounting for transfers of crypto assets (including wrapped tokens and receipt tokens). As a result, FASB has now removed the digital assets project from its research agenda, according to a summary of board decisions.
Stakeholder feedback received on other financial reporting areas for digital assets will be considered by FASB as part of its agenda consultation or agenda request processes.
In January, FASB’s staff issued an invitation to comment on its future standard-setting agenda and added a project on digital assets to its research agenda. Some of its stakeholders commented on the differences in practice for crypto lending and other transfers of crypto assets. Many of them identified crypto assets as a top priority and commended FASB for issuing the 2023 standard, known as of Subtopic 350-60, Intangibles—Goodwill and Other—Crypto Assets, noting that those amendments reduced costs for preparers and increased the decision usefulness of the financial statements for users, according to a handout at the meeting.
However, many stakeholders pointed out that there are several unresolved accounting challenges that continue to create diversity in practice and result in financial statements that don’t reflect the economics of crypto assets. Some of them noted that wrapped tokens and receipt tokens have increased in prevalence since the the 2023 accounting standards update and play a central role in the crypto asset ecosystem by bridging between blockchain protocols, facilitating decentralized finance transactions, and providing liquidity for staked crypto assets, among other use cases. However, they noted that wrapped tokens and receipt tokens are excluded from the scope of the standard and complained that the narrow scope of the standard has created a two-class system of accounting for assets with the same underlying economic characteristics and could result in artificial gains that are not decision useful for the user of the financial statements. “The two-class system of accounting also increases operability complexity and creates inconsistency in accounting outcomes,” said the handout.
Therefore, they suggested that FASB expand the scope to include crypto assets that provide rights to other crypto assets that are otherwise within the scope of Subtopic 350-60. They noted that this change would reduce the cost and complexity of applying different measurement models, best reflect the economic effect of an entity’s crypto asset holdings in the entity’s financial position and performance, and result in better financial reporting and greater consistency in practice. Many of them pointed to an increasing prevalence of transactions in which the transferor of a crypto asset retains a contractual right to reclaim the asset from the transferee, either after a fixed period or on demand. Examples of those transactions are crypto assets staking, wrapping, lending, and liquidity pool participation. They said they often see entities applying a variety of guidance and nonauthoritative sources to account for those transactions.
“I do want to be careful, though, because there’s an infinite number of transactions that can occur in this space, and I’m a little concerned that if we get too targeted, we’re going to be opening on every single business model out there, and I don’t think that’s what we should do,” said FASB chair Richard Jones during the meeting. “I think in general people know how to do the accounting here, and I think they’ve highlighted a few areas where we can bring some clarity. But I do want to be careful that we don’t get effectively wrapped up into every business model. Some of these transactions, I don’t think there’s really a transfer to a counterparty. I think there’s simply an overlay of another item, so if we’re careful with the way we write the scope, it doesn’t mean they’re out of the scope of fair value accounting, but I don’t want to start opining on whether that’s a transfer or not.”
The International Accounting Standards Board is also considering the possibility of adding a project to its agenda on crypto assets and discussed it during a meeting this week.
