Accounting for Crypto Assets Under ASC 350-60: What CPA Candidates Need to Know
Learn the new FASB guidance on accounting for crypto assets under ASC 350-60, including fair value measurement, scope criteria, and financial statement presentation for the CPA exam.
The Evolving Landscape of Crypto Asset Accounting
Crypto assets like Bitcoin, Ether, and other digital tokens have presented a unique challenge for the accounting profession. Before ASU 2023-08 (codified as ASC 350-60), entities holding crypto assets generally accounted for them as indefinite-lived intangible assets under ASC 350. This meant crypto was carried at cost less impairment, and while impairment losses were recognized when the asset's fair value dropped below its carrying amount, recoveries in value could not be recognized until the asset was sold. This produced financial statements that many users found misleading.
The FASB responded by issuing ASU 2023-08 in December 2023, creating a dedicated subtopic for crypto assets. The new guidance requires fair value measurement with changes recognized in net income, bringing crypto asset accounting closer to how market participants actually think about these assets.
Scope: Which Crypto Assets Qualify
The new guidance applies to crypto assets that meet all of the following criteria. The asset must be created or reside on a distributed ledger based on blockchain or similar technology. It must be secured through cryptography. It must be fungible, meaning each unit is interchangeable with other units of the same asset. The asset must not be created or issued by the reporting entity or its related parties. It must not give the holder a claim on an underlying good, service, or entity, distinguishing it from security tokens or utility tokens. Finally, the asset must not be created by wrapping another crypto asset that itself does not meet all the scope criteria.
Assets like Bitcoin and Ether generally meet all these criteria. Stablecoins typically fail because they represent claims on underlying assets (fiat currency reserves). Non-fungible tokens (NFTs) fail the fungibility requirement. Security tokens fail because they represent ownership interests or claims on entities.
Fair Value Measurement
Entities must measure in-scope crypto assets at fair value at each reporting date, with changes in fair value recognized in net income. The fair value measurement follows ASC 820 (Fair Value Measurement). For actively traded crypto assets, Level 1 inputs from active exchanges provide the most reliable measurement. When an entity holds crypto assets traded on multiple exchanges, it should determine the principal market (the market with the greatest volume and level of activity) and use the price from that market.
Numerical Example
Suppose a company purchases 10 Bitcoin on March 1 at $40,000 each for a total cost of $400,000. At the March 31 reporting date, Bitcoin's fair value is $45,000. At June 30, the fair value has declined to $38,000.
Under the new ASC 350-60 guidance:
- March 1: Record crypto asset at cost of $400,000.
- March 31: Fair value is $450,000. Recognize a $50,000 gain in net income. Carrying amount becomes $450,000.
- June 30: Fair value is $380,000. Recognize a $70,000 loss in net income. Carrying amount becomes $380,000.
Under the old intangible-asset approach, the March 31 increase would not have been recognized. Only the impairment at June 30 (to $380,000 from the $400,000 cost basis) would have been recorded as a $20,000 impairment loss, with no subsequent recovery allowed.
Financial Statement Presentation and Disclosure
Crypto assets measured under ASC 350-60 must be presented as a separate line item on the balance sheet, distinct from other intangible assets. On the income statement, gains and losses from changes in fair value must also be presented separately from gains and losses on other assets. Required disclosures include the name, cost basis, fair value, and number of units for each significant crypto asset holding, as well as any restrictions on sale or use.
Transaction Costs
Transaction costs incurred to acquire crypto assets (such as exchange fees, gas fees, or broker commissions) are not included in the initial measurement of the crypto asset. Instead, they are expensed as incurred. This differs from the treatment of transaction costs for many other asset classes, where such costs are capitalized as part of the asset's initial carrying amount.
Tax Implications
The shift to fair value measurement creates temporary differences between book and tax treatment, since the IRS treats crypto assets as property and recognizes gains or losses only upon disposition. Entities must establish deferred tax assets or liabilities for these temporary differences under ASC 740. For example, if a crypto asset has a fair value of $450,000 and a tax basis of $400,000, a deferred tax liability of $10,500 (at a 21% rate) would be recorded for the $50,000 temporary difference.
Key Exam Takeaways
- Crypto assets meeting the scope criteria are measured at fair value through net income under ASC 350-60.
- The old indefinite-lived intangible asset model (cost less impairment, no upward recovery) no longer applies to in-scope crypto assets.
- Stablecoins, NFTs, and security tokens generally fall outside the scope of ASC 350-60.
- Transaction costs for acquiring crypto are expensed, not capitalized.
- Be prepared to calculate deferred tax effects from the book-tax difference created by fair value measurement.
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