Cash and cash equivalents: A cryptoasset is not backed by a sovereign government thus, it is not legal tender.Other cryptoasset classifications may not be deemed appropriate, and the reasons are discussed below: 6 defines an asset as having "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events." Some cryptoassets might meet the asset definition if their value can be measured reliably. Cryptoasset transactions the reporting entity makes itself are also impairment indicators. One impairment indicator is third- party market transactions at a value less than the reporting entity's carrying value. Companies holding cryptoassets must monitor relevant events and circumstances that may indicate whether it is more likely than not that the asset is impaired. This volatility increases impairment loss risk. As of this writing, bitcoin's value rose above $63,000 in April 2021 from less than $10,000 in the previous year, then fell to below $40,000 as recently as May 19. As a result, the use of GAAP can result in understating cryptoassets on the balance sheet and prohibits reporting the true value of cryptoassets, which would occur if they were classified as financial instruments.īitcoin values have had high volatility recently. If, however, the cryptoasset value goes back up, as we witnessed in the first quarter of 2021, the business does not get to mark up the asset value. If the cryptoasset valuation drops and triggers testing that concludes an impairment exists, the business recognizes an impairment loss on the income statement. This means there is no foreseeable limit on the time the entity expects the intangible asset to contribute to its cash flows.Īn indefinite- life asset requires annual impairment testing unless events require testing sooner. An indefinite life exists if no legal, regulatory, contractual, competitive, economic, or other factors limit the intangible asset's useful life. Based on first ruling out other asset classifications, the consensus from the AICPA, based on current standards, is that a cryptoasset generally should be classified on the balance sheet as an intangible asset with an indefinite life.įASB ASC Topic 350, Intangibles - Goodwill and Other, guides cryptoasset accounting and defines intangible assets (not including financial assets) as lacking physical substance. In December 2019, the AICPA issued the practice aid Accounting for and Auditing of Digital Assets. CRYPTOASSET ACCOUNTING TREATMENTĪs of this writing, FASB has not issued cryptoasset guidance. Because a cryptoasset is not a currency, cryptoasset transactions and investments require different accounting and tax treatment. This consistency does not presently exist with cryptoassets, as we have seen recently with bitcoin's high valuation volatility. 5, a monetary unit or measurement scale in financial statements is "nominal units of money are relatively stable." This means that transactions need to be expressed in currency form and that the currency value remains constant over time. While a cryptoasset may embody some of the traits of traditional currencies, in that it can be used as a medium of exchange for goods and services, it is not currency because it is not issued by any country or central bank.Īccording to FASB Concepts Statement No. The most well- recognized cryptoasset is bitcoin, but there are other digital assets such as digital art, also known as nonfungible tokens, or NFTs. Companies that transact in cryptoassets face different accounting and tax requirements, unique financial process and internal control needs, and new risk management scenarios.Ī cryptoasset is a digital asset with ownership records stored in a computerized database using cryptography - communications techniques that allow only the sender and intended recipient of a message to view its contents - to secure transaction records that verify the chain of ownership in a digital ledger. Businesses are increasingly accepting crypto- assets as payment, paying in cryptoassets, or holding cryptoassets as investments, but CFOs must not confuse cryptoassets with electronic cash that links to a country's traditional currency.
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