While digital assets have proliferated over the past 16 years, we are just beginning to see their integration with global financial services. Among other developments, the first digital asset exchange-traded products have been launched in the United States and digital assets are being used as treasury assets as well as in governance and payment applications. That said, the industry continues experimenting with the potential of decentralized finance (DeFi), the tokenization of real-world assets, and the possibilities of Web3 in an on-chain world. While it remains to be seen whether the future of the digital asset ecosystem lies in a purely decentralized, permissionless world or a centralized one, the true power of the technology may be that it can exist in both.
Accounting for the Unknown
Before accounting for a digital asset, product, or service, it is important to understand what it is and what it represents. For example, one should be acquainted with the commonly used terminology/lingo in the digital asset industry and what it refers to (e.g., HODL, stake, shard, mine, cryptocurrency).
Given the rapid increase in digital asset transactions, the accounting for such transactions has become a frequent topic of discussion in the boardroom, on the whiteboard, and even in the news. Below is a quick overview of some of the accounting hot topics addressed in this publication, including recent developments at the FASB and SEC.
FASB Guidance
The increased adoption of and interest in crypto assets like BTC have highlighted challenges with applying existing accounting standards to this type of asset class that did not exist when these standards were created.
In May 2022, the FASB unanimously voted — this time in favor of adding a project on accounting for digital assets. Several Board deliberations and one exposure draft led to the FASB’s release of ASU 2023-08 in December 2023, which amends the accounting for certain digital assets and requires the subsequent measurement of certain digital assets at fair value. The resulting fair value model has helped clarify certain aspects of the accounting guidance on digital assets but has left some questions unanswered. Therefore, the new ASU has not entirely replaced the existing accounting model and the previous guidance will still need to be applied to certain assets.
There is potentially more to come from the FASB. In January 2025, the FASB released an ITC that requests feedback from stakeholders on the Board’s future standard-setting agenda, including digital assets. Comments on the ITC are due by June 30, 2025.
SEC Guidance and Interpretations
In March 2022, the SEC issued SAB 121 to help registrants account for obligations to safeguard crypto assets. Under SAB 121, an entity would have recorded a safeguarding obligation at the fair value of the crypto assets being safeguarded on behalf of others along with a corresponding safeguarding asset, factoring in any potential loss events. This represented a significant change to the current accounting practice because, before adopting SAB 121, an entity that had a safeguarding obligation would have generally only recorded an asset and liability with those activities if it had control, in the accounting sense, over the digital assets. A flurry of congressional and political activity has been associated with SAB 121 since its issuance, ultimately leading the SEC to rescind SAB 121 by releasing SAB 122 on January 23, 2025.
Given the challenges in accounting for digital asset transactions, more accounting and financial reporting guidance on this topic is likely to be forthcoming. Stay tuned.
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