On December 13, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08: Crypto Assets Accounting and Disclosure. This marks a significant change in the accounting treatment of crypto assets under US Generally Accepted Accounting Principles (GAAP). The new standard introduces a fair value measurement model for crypto assets that meet specific criteria, replacing the previous cost minus impairment model. It also requires more detailed disclosures to enhance the transparency and decision-usefulness of financial statements.In 2024, however, crypto firms Coinbase and Marathon Digital received regulatory comment letters from the US Securities and Exchange Commission (SEC) due to their accounting treatment. These events have heightened the crypto industry's focus on the new accounting standards. Why did these two firms receive SEC comment letters? How can crypto firms address the changes in accounting treatment and SEC regulation under the new standards? This article analyzes the new accounting standards from three aspects: the main content of ASU 2023-08, its reasons for introduction, and its impact on crypto firms and the industry. This analysis aims to help crypto firms tackle the compliance challenges brought by the new accounting standards.1 Main Content of ASU 2023-08 Accounting StandardsASU 2023-08 is the first dedicated accounting standard update for crypto assets by FASB. The revision process began in 2022, involving multiple reviews and extensive consultations with stakeholders, and was finalized and released in 2023. This accounting standard allows firms to record the current value of crypto assets at market value, marking a major shift from the traditional intangible asset model to a fair value model for crypto assets. The SEC also requires that when firms adopt the new accounting standard, they must comply with the Generally Accepted Accounting Principles(US GAAP). Below is an introduction to the main content of the accounting standard in terms of its scope of application, fair value measurement, financial statement presentation, effective date, etc.- Scope of ApplicationAccording to FASB's document Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting and Disclosure of Crypto Assets, ASU 2023-08 applies to all entities holding specific crypto assets. The assets must meet the following six criteria:Classified as intangible assets under the Accounting Standards Codification (ASC);Not providing the holder 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;Being 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 strong targeting of the standard and simplifying accounting treatment.- Fair Value MeasurementPreviously, ASC 350 classified crypto assets as indefinite-lived intangible assets and adopted the cost-impairment model. Under ASU 2023-08, crypto assets are measured at fair value, with changes in fair value during each reporting period recognized in net income. They are presented in the balance sheet at the end of the period. Fair value measurement reflects the economic substance of crypto assets in the market, overcoming the limitations of the previous model which only recorded impairment losses. It also simplifies the impairment test process, reduces costs, and enhances the decision-usefulness of financial statements.- Financial Statement PresentationAccording to ASU 2023-08, the presentation requirements for crypto assets in financial statements are as follows:Balance Sheet: Crypto assets must be presented separately from other intangible assets and can be further categorized by individual asset or asset class.Income Statement: Gains and losses from fair value changes must be recognized in net income and presented separately from the carrying value changes of other intangible assets.Cash Flow Statement: If crypto assets received as non-cash consideration (e.g., for regular business operations or donations to non-profit entities) are almost immediately converted to cash, the related cash inflow is classified as operating activities.- Disclosure RequirementsASU 2023-08 requires the following information to be disclosed in annual and interim reports:Material Holdings: For each material crypto asset (determined by fair value), disclose its name, cost basis, fair value, and quantity held. For non-material holdings, disclose the aggregate fair value and cost basis.Restricted Assets: Disclose the fair value of crypto assets subject to contractual sales restrictions, the nature of the restrictions, their remaining duration, and the conditions for lifting the restrictions.The following must be disclosed exclusively in the annual report:A summary table of crypto asset holdings from the beginning to the end of the period, including additions, disposals, and gains/losses;The disposal price and cost basis difference for disposed assets, along with related activity descriptions;If gains/losses are not presented separately in the income statement, explain the income statement item where they are included;The method used to determine the cost basis (e.g., FIFO, specific identification, average cost).Overall, the detailed and annual exclusive disclosure requirements enhance the transparency and comparability of financial statements, helping investors better understand the risks, liquidity, and management efficiency of crypto assets.- Effective Date and Transition RequirementsEffective Date: ASU 2023-08 applies to fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted, provided it begins with the fiscal year that includes the interim period.Transition Requirements: Upon adoption, a cumulative effect adjustment must be made to the opening retained earnings (or other appropriate equity or net asset item) for the difference between the crypto assets' carrying value at the end of the prior fiscal year and their fair value at the beginning of the adoption period.Given that firms need to adjust to the new accounting standards for a certain amount of time, FASB reserves a considerable amount of preparation time for firms, and allows firms to actively apply in advance, which is relatively flexible.- Comparison with International Financial Reporting Standards (IFRS)The International Accounting Standard No. 38 (IAS 38) defines intangible assets as non-monetary assets without physical substance that are identifiable. Under IAS 38, crypto assets held by enterprises are classified as intangible assets and initially measured at cost. Subsequent measurement can be based on either the cost model or the revaluation model: the cost model is generally applied to crypto assets lacking an active market, with subsequent measurement based on cost minus accumulated amortization (if applicable) and impairment losses. For crypto assets deemed to have an indefinite useful life, amortization is not required. The revaluation model applies to crypto assets with reliable fair values in active markets. Fair value changes are typically recognized in other comprehensive income (OCI) and accumulated in equity as revaluation surplus. If a revaluation results in a value reduction exceeding the accumulated revaluation surplus, the difference is recognized in profit or loss for the period. IAS 38 also stipulates that the same subsequent measurement model must be applied to a class of intangible assets, and regardless of the model chosen, impairment tests must be conducted at least annually.There are significant differences between IFRS and the updated US GAAP in terms of accounting flexibility, scope of application, and disclosure requirements. In terms of accounting flexibility, IFRS allows the use of the revaluation model, and impairment losses can be reversed to the latest estimated recoverable amount when appropriate. In contrast, the updated US GAAP adopts the fair value measurement model, where asset value fluctuations in each reporting period are recognized in current period net income, replacing the previous cost-impairment model's rule that "once impairment is recognized, it cannot be reversed." As a result, enterprises can record unrealized gains from asset price increases. Regarding the scope of application, under IFRS, crypto assets may be classified as inventory or intangible assets depending on the enterprise's holding purpose, while US GAAP explicitly limits the fair value measurement model to fungible blockchain assets without inherent rights. Additionally, IFRS lacks specific disclosure requirements for crypto assets, contrasting with US GAAP.2 Reasons for FASB's Issuance of ASU 2023-08The new accounting standard was evidently driven by dual factors: the development of the crypto industry and US national regulatory demands.- Limitations of Old Accounting Standards Highlighted by Crypto Industry DevelopmentPrior to ASU 2023-08, US GAAP classified crypto assets as intangible assets and accounted for them under ASC 350 using the cost-impairment model. This model required enterprises to record crypto assets at historical cost and assess impairment in each reporting period. However, this approach failed to fully reflect the unique economic characteristics of crypto assets. Crypto assets are highly volatile and liquid. Under the traditional model, enterprises could only record impairment losses from value declines but not unrealized gains from value increases, which could not accommodate the high volatility and liquidity of crypto assets. For example, Bitcoin's price dropped 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 crypto market grew rapidly and enterprises like MicroStrategy and Tesla increased their crypto asset investments, calls for reforming accounting standards grew louder. The limitations of the cost-impairment model prompted FASB to initiate revisions to better reflect the economic substance of crypto assets.- US National Regulatory Demands Drive Accounting Standard UnificationThe emergence of ASU 2023-08 was also driven by regulatory demands in the US crypto industry. Due to the disconnect between old accounting standards and market realities, many crypto firms adopted accounting standards they deemed appropriate. Significant differences existed in the classification, measurement, and disclosure of crypto assets among firms, posing challenges for SEC regulation. Between 2020 and 2023, the SEC strengthened crypto market oversight through comment letters, enforcement actions, and the issuance of SAB 121 (later revoked). The SEC proposed unified requirements for crypto firms' disclosures on crypto asset holdings, custody arrangements, and balance sheets. From the SEC's perspective, unified accounting standards would facilitate regulation of US crypto firms, which was one of the motivations for the accounting standard changes.3 Impact of Adopting ASU 2023-08 Accounting Standards- Impact on Crypto FirmsThe adoption of ASU 2023-08 by crypto firms may have the following effects:Enhanced Financial Statement TransparencyThe new standard requires crypto assets to be measured at fair value, leading to more uniform and transparent accounting treatment. This aligns financial statements more closely with market changes. More transparent financial statements provide management with more accurate asset valuation data and help investors make clearer judgments about firm performance, enabling better investment decisions. The increased transparency could also entice more businesses to try cryptocurrencies. Firms previously deterred by complex reporting requirements or investor concerns may now be more willing to hold cryptocurrencies as a reserve asset. In addition, 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. Coinbase, for example, has adopted the ASU 2023-08 accounting Standards update in 2024 to split net crypto asset impairment into operating crypto asset income and holding crypto assets in its 10-K financial statement filed with the SEC in the third quarter of 2024, Providing investors and regulators with a more nuanced composition of their own revenues in crypto assets improves financial statement transparency.However, the adoption of ASU 2023-08 may increase the workload for disclosure preparation. As fair value measurement aligns financial statements more closely with market changes, firms with significant crypto asset investments may experience substantial earnings volatility, potentially shaking investor confidence. Therefore, while proactively disclosing information, firms may need to adjust their strategies to address the impact of increased financial statement volatility. Measures could include detailed disclosure of crypto asset names, cost bases, fair values, and restrictive terms to manage investor expectations and avoid market misunderstandings due to volatility. Additionally, firms can enhance investor communication through shareholder letters and earnings calls to explain the impact of fair value changes.Simplified Accounting ProcessesBy adopting fair value accounting, ASU 2023-08 simplifies the accounting treatment of crypto assets. Under the old model, firms had to conduct impairment tests in each reporting period to assess whether crypto assets were below historical cost. This process involved complex valuation techniques and subjective judgments, and was particularly challenging for assets with low trading volumes. Furthermore, once recognized, impairment losses were irreversible. Even if asset values rebounded, firms could not adjust them, leading to cumbersome accounting records. The fair value accounting model eliminates the impairment test requirement, allowing direct valuation based on market prices or valuation techniques specified in ASC 820. On the one hand, this reduces the resource input of crypto enterprises for impairment tests and helps to reduce accounting costs; On the other hand, for cryptocurrencies with active markets, the fair value should be determined based on the public quotation of the principal market or most advantageous market that the enterprise can actually obtain on the measurement date, and the accounting process is more efficient.Changed Taxation and Capital StructureFair value accounting may affect the tax obligations of US-based crypto firms. Under the 2022 Inflation Reduction Act, large corporations' Adjusted Financial Statement Income (AFSI) is subject to a 15% Corporate Alternative Minimum Tax (CAMT). Unrealized fair value changes recorded under fair value accounting may be included in AFSI, increasing crypto firms' taxable income. For example, if a crypto firm records $50 million in unrealized fair value gains from Bitcoin in 2025, it may face an additional $7.5 million CAMT liability.In terms of capital structure, the fluctuating market prices of crypto assets can significantly impact balance sheets and net assets. Firms may adopt several measures to address such volatility. On one hand, as different crypto assets typically do not rise and fall in tandem, firms can reduce overall crypto asset volatility by diversifying their holdings. On the other hand, firms can use financial instruments such as futures and options to hedge against crypto asset value fluctuations. In the long term, ASU 2023-08 may drive crypto firms to place greater emphasis on capital management and tax planning to adapt to the volatility and regulatory requirements brought by fair value accounting.Increased Regulatory Risks for Non-GAAP MetricsThe implementation of ASU 2023-08 has prompted the SEC to intensify its review of non-GAAP metrics. In 2024, crypto firms Coinbase and Marathon Digital received SEC comment letters. The SEC noted that while these firms accounted for crypto assets in accordance with ASU 2023-08, their use of non-GAAP accounting metrics effectively excluded the impact of the new standard, constituting non-compliant "customized" metrics. This indicates that firms adopting the new accounting standard may face heightened regulatory risks if they attempt to smooth earnings through non-GAAP metrics. Specifically, US-based crypto firms using non-GAAP metrics must ensure compliance with the Federal Reserve's Regulation G and Regulation S-K Section 10(e). This may restrict firms' flexibility in financial reporting and compel them to rely more on GAAP metrics to disclose their true financial condition.- Impact on the Crypto MarketAccelerated Regional Industry Standardization and Regulatory CoordinationThe new accounting standard requires all eligible crypto assets to be measured at fair value and mandates uniform disclosures such as asset names, cost bases, fair values, and holding quantities. This establishes a standardized accounting framework for US crypto firms, reducing diversity in accounting practices and disclosures. Standardized disclosures enhance the reliability of financial statements and promote the normalization of industry accounting practices. The disclosure requirements of the accounting standard update align with the SEC's regulatory objectives of financial transparency and investor protection, easing the SEC's burden in reviewing the compliance of non-GAAP metrics and crypto asset risk disclosures.Stimulated Demand for Related Accounting Technologies and ServicesThe implementation of ASU 2023-08 may boost demand for technologies and services related to crypto assets. As firms adopt the fair value model for valuation, they need to update their valuation tools, analytical methods, and even seek new custody solutions. This creates favorable conditions for the emergence of new blockchain analysis platforms and custody solutions, driving the development of the crypto technology industry. Chainalysis and other blockchain analytics firms, as well as custody service providers, may experience business growth. Meanwhile, accounting firms and consulting institutions like Deloitte and PwC have already launched specialized crypto asset accounting and auditing services in response to ASU 2023-08, helping firms transition to the new standard and address compliance challenges.4 ConclusionIn conclusion, the release of ASU 2023-08 is a result of the rapid development of the crypto market and the demand for industry standardization. While the new accounting standard may pose short-term challenges of volatility for firms, investors, and policymakers alike, it significantly enhances the financial transparency and accounting efficiency of US crypto firms through fair value measurement and detailed disclosure requirements. It also provides a unified framework for SEC regulation. Looking at the current crypto market, the accounting treatment and regulation of crypto assets are advancing toward standardization and normalization. Whether the new accounting standard will influence jurisdictions following IFRS, such as the EU and the UK, and emerging crypto markets like India and Brazil to adopt fair value models, and whether it will help US crypto firms attract global capital and accelerate industry innovation remains to be seen.