The release of ASU 2023-08 is a result of the rapid development of the cryptocurrency market and the need for industry standardization.

Written by: Fintax

On December 13, 2023, the Financial Accounting Standards Board (FASB) released the Accounting Standards Update (ASU) 2023-08: Accounting and Disclosure for Crypto Assets (hereinafter referred to as ASU 2023-08), marking a significant change in the accounting treatment of crypto assets under U.S. Generally Accepted Accounting Principles (U.S. GAAP). This standard introduces a fair value measurement model for crypto assets that meet specific criteria, replacing the traditional cost-less-impairment model, and requires more detailed disclosures to enhance the transparency and decision-usefulness of financial statements.

However, in 2024, cryptocurrency companies Coinbase and Marathon Digital received regulatory comment letters from the U.S. Securities and Exchange Commission (SEC) regarding related accounting treatments. This series of events has amplified the attention of cryptocurrency companies and the entire crypto market towards the new accounting standards. Why did these two companies receive SEC comment letters? How are cryptocurrency companies responding to the changes in accounting treatment and SEC regulation brought about by the new accounting standards? This article will briefly analyze the main content of ASU 2023-08, the reasons for its formulation, and its impact on cryptocurrency companies and the industry, helping crypto companies address the compliance challenges posed by the changes in the new accounting standards.

1. Main Content of ASU 2023-08 Accounting Standards

The ASU 2023-08 accounting standards update is the first specialized accounting standards update for crypto assets issued by the FASB. The revision of this accounting standard began in 2022, undergoing multiple reviews and extensive stakeholder consultations, ultimately reaching a consensus and being published in 2023. This accounting standard allows companies to record the latest value of crypto assets at market value, marking a significant shift in crypto asset accounting from the traditional intangible asset model to a fair value model. The SEC also requires that companies comply with U.S. GAAP when applying the new accounting standards. The following sections will introduce the main content of this accounting standard in terms of its scope of application, fair value measurement, financial statement presentation, effective date, and more.

1.1 Scope of Application

According to the FASB document "Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting and Disclosure for Crypto Assets" (Accounting Standards Update No. 2023-08), ASU 2023-08 applies to all entities holding specific crypto assets (Crypto Assets), which must meet the following six criteria:

• Qualify as intangible assets as defined by the Accounting Standards Codification (ASC);

• Do not provide holders with executable rights or claims to underlying goods, services, or other assets;

• Created or existing on a distributed ledger based on blockchain or similar technology;

• Protected by cryptographic technology;

• Fungible;

• Not created or issued by the reporting entity or its affiliates.

This standard clarifies the scope of applicable crypto assets, excluding NFTs, stablecoins, and tokens issued by enterprises, ensuring the standard is targeted and simplifies accounting treatment.

1.2 Fair Value Measurement

The previous standard ASC 350 treated crypto assets as indefinite-lived intangible assets, using the cost-less-impairment model. In the ASU 2023-08 accounting standards update, crypto assets are measured at their fair value, with changes in fair value during each reporting period recognized in net income and presented on the balance sheet at the end of the period. Fair value measurement reflects the market economic substance of crypto assets, overcoming the limitations of the previous standard that only recorded impairment losses, simplifying the impairment testing process, reducing costs, and enhancing the decision-making reference value of financial statements.

1.3 Financial Statement Presentation

According to the ASU 2023-08 accounting standards update, the presentation requirements for crypto assets in the following financial statements are as follows:

• Balance Sheet: Crypto assets must be presented separately from other intangible assets and may be further broken down by individual asset or category.

• Income Statement: Gains and losses from fair value changes must be included in net income and presented separately from changes in the carrying value of other intangible assets.

• Cash Flow Statement: Crypto assets received as non-cash consideration (such as regular business transactions or donations from non-profit entities) that are almost immediately converted to cash should be classified as operating activities.

1.4 Disclosure Requirements

The ASU 2023-08 accounting standards update requires the following information to be disclosed in annual and interim reports:

• Significant Holdings: The name, cost basis, fair value, and quantity of each significant crypto asset (determined by fair value); the total fair value and cost basis of non-significant holdings.

• Restricted Assets: The fair value, nature of restrictions, remaining duration, and conditions for lifting restrictions on crypto assets subject to contractual sales restrictions.

The following information must be disclosed specifically in the company's annual report:

• A summary of activities for crypto asset holdings from the beginning to the end of the period, including additions, disposals, gains and losses, etc.;

• The difference between the disposal price and cost basis of disposed assets and a description of related activities;

• If gains and losses are not presented separately, indicate where they are located in the income statement;

• The method for determining the cost basis (e.g., first-in, first-out, specific identification, average cost, etc.).

Overall, the detailed disclosure and annual specific disclosure requirements enhance the transparency and comparability of financial statements, helping investors better understand the risks, liquidity, and management efficiency of crypto assets.

1.5 Effective Date and Transition Requirements

Effective Date: The ASU 2023-08 accounting standards update applies to fiscal years beginning after December 15, 2024 (including interim periods), and early adoption is permitted (must start from the beginning of the fiscal year that includes the interim report).

Transition Requirements: Upon adoption, cumulative effect adjustments must be made to the beginning retained earnings (or other appropriate equity or net asset items), with the adjustment amount being the difference between the carrying value of crypto assets at the end of the previous fiscal year and the fair value at the beginning of the adoption period.

Given that companies need time to adjust to the new accounting standards, the FASB has allowed a relatively ample preparation period and permits companies to voluntarily adopt early, making it quite flexible.

1.6 Comparison with International Financial Reporting Standards (IFRS)

International Accounting Standard 38: Intangible Assets (IAS 38) defines intangible assets as identifiable non-monetary assets without physical substance. According to IAS 38, crypto assets held by companies are classified as intangible assets, initially measured at cost, while subsequent measurement can use either the cost model or the revaluation model: the cost model generally applies to crypto assets lacking an active market, measured subsequently at cost less accumulated amortization (if applicable) and impairment losses. For crypto assets considered to have an indefinite useful life, amortization is not required; the revaluation model applies when crypto assets have a reliable fair value in an active market, with fair value changes typically recognized in other comprehensive income (OCI) and accumulated in revaluation surplus within equity. If revaluation results in a decrease in value exceeding the accumulated revaluation surplus, the difference is recognized in profit or loss for the period. IAS 38 also stipulates that only one subsequent measurement model can be used for the same class of intangible assets, and regardless of which subsequent measurement model is adopted, impairment testing must be conducted at least once a year.

There are significant differences between IFRS and the updated U.S. GAAP in terms of flexibility in accounting treatment, scope of application, and disclosure requirements. In terms of flexibility in accounting treatment, IFRS allows the choice of a revaluation model, and impairment losses can be reversed to the latest estimated recoverable amount when appropriate; in contrast, the updated U.S. GAAP adopts a fair value measurement model, with asset value fluctuations recognized in net income for each reporting period, no longer applying the original cost impairment model's rule that "once impairment is recognized, it cannot be reversed." Therefore, companies can record unrealized gains from asset price increases. Regarding the scope of application, crypto assets under IFRS may be classified as inventory or intangible assets depending on the purpose for which the company holds them, while U.S. GAAP explicitly limits the scope of the fair value measurement model to fungible, non-rights blockchain assets. Additionally, IFRS does not have specific disclosure requirements for crypto assets, which sharply contrasts with U.S. GAAP.

2. Reasons for FASB's Introduction of ASU 2023-08

Looking back at the formulation and release process of the new accounting standards, it is evident that the new accounting standards are driven by both the development of the crypto industry and the regulatory needs of the U.S. government.

2.1 The Development of the Crypto Industry Highlights the Limitations of Old Accounting Standards

Before the release of ASU 2023-08, U.S. GAAP treated crypto assets as intangible assets, using the cost-less-impairment model for accounting treatment according to ASC 350. This model required companies to record crypto assets at historical cost and assess for impairment in each reporting period, but it could not record increases in asset value. This treatment stemmed from the early view of crypto assets as similar to intangible assets like trademarks or patents. However, the traditional cost-less-impairment model could not adequately reflect the unique economic characteristics of crypto assets. Crypto assets are highly volatile and liquid, allowing companies to only record impairment losses from value declines, while unrealized gains from value increases could not be recorded, failing to adapt to the high volatility and liquidity of crypto assets. For example, the price of Bitcoin fell from $69,000 in 2021 to $16,000 in 2022, only to surpass $100,000 in 2025. The traditional model led to a disconnect between financial statements and market realities, making it difficult for investors to obtain decision-useful information.

As the scale of the crypto market rapidly grew, companies like MicroStrategy and Tesla increased their investments in crypto assets, and calls for reforming accounting standards became increasingly strong. The limitations of the cost-less-impairment model prompted the FASB to initiate revisions to better reflect the economic substance of crypto assets.

2.2 U.S. National Regulatory Needs Drive the Unification of Accounting Standards

The emergence of ASU 2023-08 is also driven by the regulatory needs of the U.S. cryptocurrency industry. Due to the disconnect between the old FASB accounting standards and the market, many crypto companies tend to adopt accounting standards they deem appropriate, leading to significant differences in the classification, measurement, and disclosure of crypto assets among different companies. This has posed numerous challenges for SEC regulation. From 2020 to 2023, the SEC had to strengthen its oversight of the crypto market by continuously sending comment letters and conducting enforcement actions, and it issued SAB 121 (later rescinded), which proposed unified disclosure requirements regarding crypto companies' holdings, custody arrangements, and balance sheet information. From the SEC's perspective, a unified accounting standard is clearly more beneficial for its regulatory work concerning U.S. crypto companies, which is one of the motivations for the SEC's involvement in facilitating changes to accounting standards.

3. Impact of Adopting ASU 2023-08 Accounting Standards

3.1 Impact on Crypto Companies

For crypto companies, adopting ASU 2023-08 as an accounting standard may have the following impacts:

3.1.1 Increased Transparency of Financial Statements

The new standard requires crypto assets to be measured at fair value, meaning that the accounting treatment of crypto companies under the new standard will be more unified and transparent, with financial statements more closely reflecting market changes. More transparent financial statements not only provide management with more accurate asset value data but also help investors make clearer judgments about company performance, thereby making better investment decisions. Additionally, this increase in transparency may attract more companies to try cryptocurrencies. Those that previously hesitated due to inconvenient financial reporting or investor pressure may now accept holding cryptocurrencies as reserve assets. Furthermore, the financial statements disclosed under fair value accounting provide institutional investors with a more reliable information base, helping to attract more capital into the crypto market. For example, Coinbase has adopted the ASU 2023-08 accounting standards update in 2024, and in its 10-K financial report submitted to the SEC for the third quarter of 2024, it separated the net impairment of crypto assets into operating crypto asset income and held crypto assets, providing investors and regulators with a more detailed breakdown of income from crypto assets, thereby enhancing the transparency of financial statements.

However, the adoption of the ASU 2023-08 accounting standards update may also increase the workload for disclosure preparation. Since fair value measurement makes crypto companies' financial statements more closely aligned with market changes, this means that some companies heavily invested in crypto assets will experience significant fluctuations in earnings, shaking investor confidence. Therefore, while companies actively disclose information, they may also need to adjust their strategies to address the impacts of increased volatility in financial statements, such as managing investor expectations through detailed disclosures of crypto asset names, cost bases, fair values, and restrictive clauses to avoid market misunderstandings caused by volatility; or enhancing communication with investors through shareholder letters and earnings call meetings to explain the impacts of fair value changes.

3.1.2 Simplified Accounting Processes

ASU 2023-08 simplifies the accounting processes for crypto assets by adopting fair value accounting. Under the old model, companies were required to conduct impairment tests in each reporting period to assess whether crypto assets were below historical cost, a process involving complex valuation techniques and subjective judgments, making it even more difficult to value assets with low trading volumes. Additionally, impairment losses are irreversible; even if asset values subsequently recover, companies cannot adjust, leading to cumbersome accounting records. The fair value accounting model eliminates the impairment testing step, directly accounting based on market prices or valuation techniques specified by ASC 820, which reduces the resources crypto companies need to invest in impairment testing, helping to lower accounting costs. On the other hand, for cryptocurrencies in active markets, their fair value should be determined based on publicly quoted prices available in the principal market or most advantageous market at the measurement date, making the accounting process more efficient.

3.1.3 Changes in Tax Obligations and Capital Structure

Fair value accounting may impact the tax obligations of crypto companies registered in the U.S. According to the U.S. Inflation Reduction Act of 2022, large companies will be subject to a 15% Corporate Alternative Minimum Tax (CAMT) based on their Adjusted Financial Statement Income (AFSI). Unrealized changes recorded under fair value accounting may increase the taxable income of crypto companies due to their inclusion in AFSI. For example, if a crypto company records an unrealized fair value gain of $50 million in 2025 due to a rise in Bitcoin prices, it may incur an additional $7.5 million in CAMT tax liability.

Regarding capital structure, given the significant fluctuations in cryptocurrency market prices, fair value volatility affects the balance sheet and net assets, causing substantial fluctuations in the company's financial statements. In this case, companies need to take various measures to address such volatility. On one hand, the market prices of different cryptocurrencies typically do not rise and fall simultaneously, so companies can reduce the overall volatility of crypto assets by holding a diversified portfolio of cryptocurrencies; on the other hand, companies can also use futures, options, and other tools to hedge against the impacts of changes in the market value of crypto assets. In the long run, ASU 2023-08 may drive crypto companies to place greater emphasis on capital management and tax planning to adapt to the volatility and regulatory requirements brought about by fair value accounting.

3.1.4 Facing Regulatory Risks of Non-GAAP Metrics

The implementation of ASU 2023-08 has prompted the SEC to strengthen its scrutiny of non-GAAP metrics. In 2024, crypto companies Coinbase and Marathon Digital received SEC comment letters. In the comment letters, the SEC noted that although they were accounting for their operations under ASU 2023-08, the non-GAAP accounting metrics they used effectively excluded the impacts of ASU 2023-08, constituting a violation of "customized" metrics that needed correction. This indicates that after adopting the new accounting standards, if companies attempt to smooth earnings through non-GAAP metrics, they may face higher regulatory risks. Specifically, crypto companies registered in the U.S. that use non-GAAP metrics for accounting must ensure that the metrics comply with the Federal Reserve's Regulation G and the requirements of Regulation S-K Section 10(e), which may limit the flexibility of companies in financial reporting and force them to rely more on GAAP metrics to disclose their true financial condition.

3.2 Impact on the Crypto Market

3.2.1 Accelerating Regional Industry Standardization and Regulatory Coordination

The new accounting standards require all qualifying crypto assets to be measured at fair value while providing unified disclosure information such as asset names, cost bases, fair values, and quantities held, establishing a standardized accounting framework for U.S. crypto companies and reducing the diversity of accounting practices and information disclosures among companies. Standardized disclosures clearly enhance the reliability of companies' financial statements and promote the normalization of industry accounting practices. The accounting standards update requires companies to disclose detailed information about crypto assets in their annual and interim reports, including asset names, cost bases, fair values, quantities held, details of contract-restricted assets, and reconciliation statements of asset balances from the beginning to the end of the period. These disclosure requirements align closely with the SEC's regulatory goals of financial transparency and investor protection, alleviating some of the burdens on the SEC in reviewing the compliance of companies' non-GAAP metrics and the disclosure of crypto asset risks.

3.2.2 Promoting Growth in Demand for Corresponding Accounting Technologies and Services

The implementation of ASU 2023-08 may stimulate demand for technologies and services related to crypto assets. Due to the adoption of fair value models for valuation, crypto companies will need to update their internal valuation tools and analysis methods, and even seek new custody solutions, creating favorable conditions for the emergence of new blockchain analysis platforms and custody solutions, thereby promoting the development of the crypto technology industry. On-chain data analysis companies like Chainalysis or custody service providers may experience some business growth as a result. Meanwhile, accounting firms and consulting agencies like Deloitte and PwC have already provided a series of specialized accounting audit services for crypto assets in response to ASU 2023-08, helping companies transition to the new standards and address compliance challenges.

4. Conclusion

The release of ASU 2023-08 is a result of the rapid development of the crypto market and the need for industry standardization. Although, in the short term, the volatility issues brought about by the new accounting standards will pose challenges that companies, investors, and even policymakers will face together; it has significantly improved the financial transparency and accounting efficiency of U.S. crypto companies through fair value measurement and detailed disclosure requirements, while providing a unified framework for SEC regulation. Looking at the current crypto market, the accounting treatment and regulation of crypto assets are continuously moving towards standardization and normalization. What further impacts the new accounting standards will have on the U.S. crypto market, whether they will encourage jurisdictions like the EU, the UK, and emerging crypto markets like India and Brazil to adjust their standards based on fair value models, and whether they will help U.S. crypto companies attract more global capital and accelerate technological innovation in the industry, still requires ongoing observation.

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