Crypto accounting standards w. the FASB, Deloitte & RSM
In a recent panel from the Crypto Finance Forum (CFF), Jeff Rundlet, Head of Accounting Strategy at Cryptio, led a discussion with industry experts to shed light on the ongoing developments in crypto accounting standards. The panel included Alicia A. Manders, Assistant Director of Technical Activities at FASB, Stephen McKinney, National Office Managing Director at Deloitte, and Bennett Moore, National Leader | Blockchain & Digital Assets Center of Excellence at RSM. The following blog post summarizes their insights and discussions.
Behind the scenes at the FASB
The Financial Accounting Standards Board (FASB) has been instrumental in providing regulatory clarity and guidance for the crypto industry. Alicia A. Manders, Assistant Director of Technical Activities at FASB, provided insights into the inner workings of the organization.
Alicia shared that the FASB is a relatively small organization with around 80 staff members working on various projects. Within the FASB, there is a dedicated crypto team of six people. Their role is to work on projects related to crypto accounting standards. The decision-making process at FASB involves gathering feedback through comment letters and outreach calls. Alicia emphasized the importance of understanding the impact of proposed changes from both an investor and a cost perspective.
“The FASB board comprises six members, including individuals from various backgrounds, such as industry, auditing, the SEC, and investors. Decisions made by the board drive changes to Generally Accepted Accounting Principles (GAAP).”
FASB: Gathering and addressing comments
Alicia clarified that the FASB does not make decisions through voting; rather, they focus on the rationale and qualitative aspects presented in comments. The goal is to understand the reasoning behind the comments, whether in favor or against a particular proposal.
Stephen added that the FASB compiles and presents all feedback received, including the percentage of consensus and all other relevant points. The board considers the overall feedback and the potential impact on the industry. The key is to evaluate the rationale and thought process behind the comments.
“What we would normally do at the FASB was you'd have to compile all of that. It wasn't like you would just say well, you know, 70% said they agree, and that's the only thing that you would represent to the board. You'd actually say, well, 70% of the consensus said this. And then here are all the other things that have been mentioned. And so from that perspective, at least, the board's able to see and hear all of the different feedback that's received, positive and negative.”
FASB: The voting process
When the board votes during a meeting, it signifies their support for the decisions reached and is published as tentative decisions.
“The final vote, however, occurs when the document itself is balloted. If the board chooses to stay silent on a topic, it counts as an abstention, and a majority is required for decision-making.”
Addressing fees and expenses
Alicia highlighted a significant decision made during the meeting regarding the expensing of fees. The FASB initially decided to expense fees as incurred but revisited the issue later. Alicia explained that this change in decision demonstrates the board's adaptability and willingness to reconsider earlier choices.
"The decision was influenced by various factors, including feedback received during the comment period and the utility of information under different approaches. Additionally, industry guidance and the existence of certain areas of silence in GAAP played a role in the decision-making process."
Bennett added that the decision to leave certain aspects silent can provide flexibility for companies within the industry to apply accounting policies that suit their specific circumstances.
FASB’s take on wrap tokens
The panel discussed the exclusion of wrap tokens from the scope of the crypto accounting standards. Bennett expressed his respect for the FASB's decision to narrow the scope to expedite the release of standards that can be quickly adopted. He acknowledged the challenges that would arise from addressing more complex issues like wrap tokens.
Stephen echoed this sentiment, emphasizing that the board's objective was to provide timely solutions for the industry, even if it meant not addressing every issue comprehensively.
Alicia added that wrap tokens are a subject that requires continuous learning and understanding within the crypto space.
“The FASB remains open to monitoring and addressing issues as they become more prevalent or challenging for the industry.”
Early adoption and transition
Alicia addressed the timeline for early adoption, explaining that companies have shown a strong desire to adopt the standards promptly. The plan is to publish the final standard by the end of the fourth quarter, making early adoption possible for companies with calendar year ends starting from January 1, 2024. Adoption at the beginning of an annual period is essential to maintain consistency in financial statements.
Transition challenges: accurate data & fair value measurement
Bennett and Stephen discussed the challenges companies might face during the transition to the new crypto accounting standards. One major challenge is obtaining data from various blockchains and platforms.
"Data often comes in different formats, and the risk of data loss, especially in indexing, is a significant concern."
Stephen highlighted that while Fair Value Measurement guidance (A20) has been around for a while, the transition can be challenging, especially for companies not familiar with fair valuing assets. Certain situations, where fair values are not readily determinable present additional challenges.
Future clarity and guidance with the FASB
The panel concluded by addressing the need for further clarity and guidance in the evolving crypto industry. Bennett emphasized that the rapidly evolving nature of the space requires constant attention and ongoing work to fill gaps in accounting standards.
"The need for guidance on when crypto qualifies as an asset on financial statements and how it should be classified. Smart contracts and the application of existing accounting standards also present areas for further consideration."
Alicia encourages industry collaboration and stressed the importance of the crypto community working together to identify issues that require standardization. While the FASB is open to addressing these issues, a collaborative approach from industry experts is invaluable.
“We're happy to address any issues that come up. But I really encourage all of you to work together as an industry, strength coming from your industry collaboratively. You see it in other industries as well that have been around for a long time. I'm excited about hearing about potential opportunities for us to work together in the future.”
Charting the course for crypto accounting standards
In conclusion, the forum provided valuable insights into the development of crypto accounting standards, the decision-making process at the FASB, and the challenges and opportunities facing companies in the crypto space.
The ongoing evolution of the industry and the need for continuous learning and collaboration highlight the importance of addressing accounting standards in a rapidly changing environment.
Table of contents
- Behind the scenes at the FASB
- FASB: Gathering and addressing comments
- FASB: The voting process
- Addressing fees and expenses
- FASB's take on wrap tokens
- Early adoption and transition
- Transition challenges: accurate data & fair value measurement
- Future clarity and guidance with the FASB
- Charting the course for crypto accounting standards