Crypto Fair Value Accounting Under FASB ASU 2023-08

For years, US GAAP produced crypto balance sheets that everyone agreed were wrong. Digital assets were accounted for as indefinite lived intangibles, which meant an entity wrote the carrying amount down when the price fell and could not write it back up when the price recovered. A holder whose position had fully recovered still carried it at the bottom of the trough.

ASU 2023-08 fixed that, and in doing so it created a sharper divide between assets inside its scope and assets outside it.

What it did

The standard added Subtopic 350-60 to the codification. In-scope crypto assets are measured at fair value, with changes recognised in net income each period. Presentation and disclosure requirements accompany it, including separate presentation of in-scope crypto assets and disclosure of significant holdings and reconciliation of activity.

The practical result is that gains and losses are now symmetric, and reported holdings reflect what the assets are worth rather than the worst point since acquisition.

Scope is the whole exercise

The change only helps you if your asset qualifies, and the criteria are cumulative. An in-scope asset must, broadly, meet the definition of an intangible asset, be fungible, be secured through cryptography, reside on a distributed ledger, not provide the holder with enforceable rights to or claims on underlying goods, services or other assets, and not be created or issued by the reporting entity or its related parties.

Those conditions matter more than the headline. Work through them and a large amount of what companies hold falls out:

• NFTs fail fungibility. They stay on the old path, with impairment and no recovery.
• Tokens conveying enforceable rights or claims fail that criterion, which is a question to ask about wrapped assets, receipt tokens and anything representing a claim on a deposit rather than a bearer asset.
• Self issued tokens are excluded. An entity that issued its own token does not fair value its holding of it under this subtopic, which is exactly the case where a mark to market number would have been least meaningful anyway.

So an entity holding bitcoin, an NFT collection and its own governance token is applying two different models at once, and must be able to say why each holding sits where it does.

Fair value still has to be measured

Moving to fair value moves the difficulty rather than removing it. Measurement follows the existing fair value framework and its input hierarchy, so the questions become: which market is the principal market for this asset, what is the price at the measurement date in that market, and how is a thinly traded asset handled.

Entities holding only large liquid assets find this straightforward. Entities holding long tail tokens find that in-scope does not mean easy, because an observable price in an active market is exactly what a long tail token lacks.

What auditors ask

• Documented scope assessment per asset, against each criterion, retained rather than reasoned afresh each period.
• The principal market determination and why it is the principal market.
• Price source and measurement time convention, applied consistently.
• Existence and control evidence at the measurement date, meaning proof the entity controls the addresses, not just a balance screenshot.
• The activity reconciliation supporting the disclosures.

What it did not change

ASU 2023-08 is a US GAAP measurement standard. It does not change tax treatment, which follows its own rules and is not driven by book carrying amounts. It does not change IFRS, where the analysis still generally runs through IAS 38 or IAS 2. And it does not change custody or control requirements, which are an audit question rather than a measurement one.

Our crypto accounting guide covers the framework choices, and financial statements covers presentation and disclosure.

General information, not accounting or audit advice. Confirm the current requirements of the applicable standards with your auditor or a qualified accountant.

Practical Steps for Implementing the New Measurement Approach

Once you have confirmed which of your crypto assets fall within the scope of the updated guidance, the next step is to build a practical framework for applying it consistently. Start by creating a detailed inventory of every digital asset your entity holds. For each one, document the date acquired, the quantity, the wallet or exchange where it is held, and the cost basis. This inventory becomes the foundation for all subsequent measurement and disclosure work. It is essential to keep this inventory current, updating it whenever you acquire, transfer, or dispose of any asset. A well-maintained inventory also helps you respond quickly to auditor requests and internal management queries. Without a reliable inventory, you cannot accurately measure fair value or reconcile activity, and you risk errors that could misstate your financial statements. Therefore, invest time upfront to organize your records thoroughly. Consider using a dedicated spreadsheet or software tool that can track multiple attributes per asset, including any unique identifiers such as contract addresses or token IDs. This level of detail will prove invaluable when you need to demonstrate that each asset meets the scope criteria or when you must explain your valuation methodology. Remember, the goal is not just to comply with the standard but to have a clear, auditable trail that supports every number you report.

Identifying Unanswered Questions in Scope Assessment

The scope criteria in the updated guidance may seem straightforward, but applying them to real-world assets often raises nuanced questions. For instance, determining whether a token provides the holder with enforceable rights to underlying goods or services can be complex, especially for tokens that represent a claim on a future product or a share of revenue. Similarly, assessing fungibility is not always binary; some tokens may be interchangeable in practice but have unique metadata that could affect their value. To address these uncertainties, you should document your analysis for each asset, explaining why you believe it meets or fails each criterion. If you are unsure, seek clarification from a qualified professional or your auditor early in the process. Do not assume that an asset is in scope simply because it is a cryptocurrency; the criteria are cumulative, and a single failure excludes the asset. Also, consider whether your entity has issued any tokens, as those are explicitly excluded. If you have self-issued tokens, you must apply a different accounting treatment, and you should understand the implications for your financial statements. By systematically working through each criterion and documenting your reasoning, you reduce the risk of misclassification and ensure that your scope assessment is defensible. Remember that this assessment is not a one-time exercise; you should revisit it whenever you acquire a new type of asset or when the characteristics of an existing holding change.

Reconciling Data Sources for Fair Value Measurement

Measuring fair value requires reliable price data, but you may find that different sources provide conflicting prices for the same asset. This is particularly common for less liquid tokens, where trading volumes are thin and prices can vary significantly across exchanges. To manage this, you should establish a policy for selecting a primary price source and apply it consistently. Document the rationale for your choice, such as the exchange with the highest trading volume or the one that best represents the principal market for the asset. If you use multiple sources, you need a clear methodology for aggregating them, such as taking a volume-weighted average. Consistency is key; changing your source or methodology without a valid reason could undermine the reliability of your measurements. Additionally, you should consider the timing of your price snapshots. Fair value is determined at a specific measurement date, so you must ensure that the prices you use are as of that date, not a day before or after. Reconciling your internal records with external data is also crucial. For example, you should verify that the quantities in your inventory match the balances shown on your wallets or exchange accounts. Any discrepancies should be investigated and resolved promptly. By establishing robust reconciliation procedures, you enhance the accuracy of your fair value measurements and reduce the likelihood of errors in your financial statements.

Documenting Assumptions and Judgments

The move to fair value measurement introduces a greater degree of judgment into your accounting process. You will need to make assumptions about market activity, valuation techniques, and the relevance of observable inputs. To ensure that your judgments are transparent and defensible, you must document them thoroughly. For each asset or group of assets, record the key assumptions you used, such as the discount rate for a discounted cash flow model or the selection of comparable assets for a market approach. Explain why you chose those assumptions and how they align with the fair value hierarchy. For example, if you are valuing a token with no active market, you might use a recent transaction price or a model based on the underlying protocol's economics. Documenting these assumptions not only helps your auditors understand your process but also provides a reference for future periods. If market conditions change, you can revisit your assumptions and adjust them as needed, with a clear record of what changed and why. Additionally, you should document any significant judgments you made in applying the scope criteria, as mentioned earlier. This documentation should be retained as part of your accounting records, not just kept in email threads or verbal discussions. A centralized repository for such documentation, such as a memos folder or an accounting manual, can be helpful. By making documentation a habit, you demonstrate a commitment to accuracy and transparency, which can build trust with stakeholders and reduce the risk of disputes during audits.

Reviewing Before Filing and Knowing When to Seek Professional Help

Before you finalize your financial statements, conduct a thorough review of your crypto accounting to catch any errors or omissions. This review should cover your scope assessment, fair value measurements, and disclosures. Verify that all in-scope assets are measured at fair value and that any out-of-scope assets are handled correctly. Check that your fair value measurements are consistent with your documented policies and that you have not inadvertently used an outdated price. Reconcile your activity reconciliation to ensure that all purchases, sales, and transfers are accounted for. Also, review your disclosures to confirm that they meet the requirements of the standard, including the separate presentation of in-scope assets and the reconciliation of significant holdings. If you identify any issues, correct them before filing. It is also wise to have a second set of eyes, perhaps a colleague or an external consultant, review your work. This independent review can catch mistakes you might have overlooked. Finally, recognize that crypto accounting is complex and evolving. If you encounter situations that are unclear or beyond your expertise, do not hesitate to seek help from a qualified professional, such as a CPA with crypto experience or a specialized accounting firm. They can provide guidance on complex valuation issues, scope questions, and disclosure requirements. Investing in professional advice can save you from costly errors and ensure that your financial statements are accurate and compliant. Remember, the goal is not just to meet the minimum requirements but to present a true and fair view of your entity's financial position.