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Cryptedge Consults #001 | GAAP and Impairment - Crypto as Indefinite-lived Intangible Assets

Updated: May 23, 2023

In recent years cryptocurrencies have become increasingly popular, and, as a result, accounting for them has become a hot topic. Most crypto assets are accounted for as indefinite-lived intangible assets in the absence of crypto-specific US GAAP guidelines.


In short, this means that they are recorded at their fair value on the acquisition date and are subsequently measured at fair value. In this article, we will discuss the accounting treatment of crypto assets as indefinite-lived intangible assets.


Firstly, it is important to note that there is no specific FASB codifications on crypto assets as of yet. Most crypto assets meet the definition of, and are therefore accounted for as, intangible assets. However, central bank digital currencies (CBDCs) and many stablecoins are not accounted for as crypto intangible assets.


The reason for this is because they are backed by a government or other entity and are not subject to the same volatility as other cryptocurrencies.

Crypto intangible assets like bitcoin and ether generally have an indefinite useful life and therefore are not amortized. Crypto intangible assets are impaired whenever their fair value falls below their carrying amount


Impairments of crypto intangible assets, once taken, cannot be reversed – even if the asset’s fair value recovers during the same reporting period that an impairment is taken. Sales of crypto assets are recognized when the sale is consummated, which is typically when the buyer takes control of the asset


It is important to note that the accounting treatment of crypto assets can be complex and requires careful consideration. Companies that are not broker-dealers or investment companies subject to ASC 940 or ASC 946 that have acquired crypto assets should carefully consider the accounting treatment of these assets


Failure to properly account for crypto assets can result in financial statement misstatements and potential regulatory scrutiny.


In conclusion, accounting for crypto assets as indefinite-lived intangible assets requires careful consideration and adherence to US GAAP. Most crypto assets are accounted for as intangible assets, and impairments of these assets cannot be reversed (in IFRS this is not true, but that treatment is not covered here). Companies that have acquired crypto assets should carefully consider the accounting treatment of these assets to avoid financial statement misstatements and potential regulatory scrutiny.


References:

https://frv.kpmg.us/reference-library/2022/crypto-asset-executive-summary.html


Accounting, Balance Sheet, Income Statement, Cash Flow, Compliance, GAAP, IFRS, Finance, Advisory, Tax, Crypto, Decentralized Finance (DeFi), Decentralized exchanges (DEX), Cryptography, Blockchain, Consensus, Crypto mining, Gas, Staking, Proof-of-work (PoW), Proof-of-stake (PoS), Node, Bitcoin, Altcoin, Ethereum, Smart contract, Stablecoins, ATH (All-Time-High), ATL (All-Time-Low), Whitepaper, Liquidity pool, Token, Initial Coin Offerings (ICO), Non-Fungible Token (NFT), Metamask, Wallet, Wallet address, Airdrop
Accounting, Balance Sheet, Income Statement, Cash Flow, Compliance, GAAP, IFRS, Finance, Advisory, Tax, Crypto, Decentralized Finance (DeFi), Decentralized exchanges (DEX), Cryptography, Blockchain, Consensus, Crypto mining, Gas, Staking, Proof-of-work (PoW), Proof-of-stake (PoS), Node, Bitcoin, Altcoin, Ethereum, Smart contract, Stablecoins, ATH (All-Time-High), ATL (All-Time-Low), Whitepaper, Liquidity pool, Token, Initial Coin Offerings (ICO), Non-Fungible Token (NFT), Metamask, Wallet, Wallet address, Airdrop



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