FASB plans changes in crypto accounting

The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.

During Wednesday's meeting, FASB's board made certain tentative decisions, according to a summary posted to FASB's website. FASB began deliberating the Accounting for transfers of crypto assets project and decided to expand the scope of its guidance in  Subtopic 350-60, Intangibles—Goodwill and Other—Crypto Assets, to address crypto assets that provide the holder with a right to receive another crypto asset. FASB decided to clarify the existing disclosure guidance by providing an example of a tabular disclosure illustrating that wrapped tokens, if they're significant, would be disclosed separately from other significant crypto asset holdings.

At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.

FASB also began deliberations on the Cash equivalents—disclosure enhancement and classification of certain digital assets project and made a number of decisions.

The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:

1. Interpretive explanations that link to the current cash equivalents definition;
2. The amount and composition of reserve assets; and,
3. The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
   

FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it's creating a policy concerning which assets that satisfy the Master Glossary definition of the term "cash equivalents" will be treated as cash equivalents.

"I agree with the staff suggestion to look at examples," said FASB vice chair Hillary Salo. "From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn't be changing the definition of cash equivalents, and it's a high bar to get into the cash equivalent definition."

"I'm definitely supportive of not changing the definition of cash equivalents," said FASB chair Richard Jones. "I believe that's settled GAAP in a way, and we're not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody's going to want their exact pattern, but that's not what we're doing."

The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.

"We really don't want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date," said Jones. "That's not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine."

The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.

Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.

FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.

The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.

FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.

The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.