In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, introducing a pivotal change in the financial reporting of digital assets. The new guidance requires certain crypto assets to be measured at fair value through net income, with both unrealized and realized gains or losses reported in earnings each reporting period.
Digital Assets That Qualify for Fair Value Accounting
To be in scope, digital assets must meet all of the following criteria:
- Fungible in nature
- Lack physical form
- Exist solely on a distributed ledger (blockchain)
- Are secured through cryptography
- Are not classified as securities or derivative financial instruments
- Are not created or issued by the reporting entity or any of its affiliates
Examples of Qualifying Crypto Assets:
- Bitcoin (BTC)
- Ethereum (ETH)
- Solana (SOL)
- Pecu Novus (PECU)
- Cardano (ADA)
- Litecoin (LTC)
These assets must now be measured at fair value, with changes in value recognized directly in net income, improving transparency and relevance in financial reporting for investors and regulators.
Digital Assets Excluded from Fair Value Accounting #
The following types of digital assets are excluded from ASU 2023-08 and continue to be accounted for using other U.S. GAAP models (typically as intangible assets at cost minus impairment, or under specific financial instrument rules):
- Non-Fungible Tokens (NFTs)
- Unique and non-fungible, thus not qualifying under ASU 2023-08.
- Tokenized Real-World Assets (RWAs)
- Represent ownership of physical items like real estate, gold, or machinery.
- Certain Stablecoins
- Especially those pegged to fiat or backed by financial instruments such as USDT, USDT, USXM, RLUSD, which may qualify as financial assets.
- Securities Tokens
- If deemed a security under U.S. law (e.g., passes the Howey Test), they fall under securities accounting rules.
- Utility Tokens with Enforceable Rights
- Prepaid or access-based tokens for services/goods that grant economic rights outside pure speculation or value transfer.
Key Implications for Companies #
- Entities holding qualifying crypto must adjust their valuation approach to mark-to-market each period.
- Improves the faithful representation of digital assets on balance sheets and income statements.
- Could lead to greater volatility in earnings, but also increased transparency for stakeholders.
- Signals the growing institutionalization and legitimacy of certain crypto assets in mainstream accounting.
Digital Assets Included vs. Excluded from Fair Value Accounting #
| Criteria | Included (Fair Value) | Excluded (Not Fair Value) |
|---|---|---|
| Fungibility | Fungible (interchangeable units) | Non-fungible (unique units) |
| Physical Form | None – digital-only | Varies – may represent physical assets |
| Existence | Solely on blockchain | May represent off-chain rights/assets |
| Security Classification | Not a security or derivative | May be considered securities or financial instruments |
| Issuer Relationship | Not issued by the reporting entity or affiliates | May be issued by entity or include enforceable rights |
| Examples | Bitcoin, Ethereum, Solana, Pecu Novus, Cardano, Litecoin | NFTs, RWAs, Stablecoins, Security Tokens, Utility Tokens |
| Accounting Method | Fair value through net income (FV-NI) | Intangible or financial asset treatment |
| Income Statement Impact | Gains/losses recognized each reporting period | Impairment-only unless sold |
