On March 23, 2023, the FASB (Financial Accounting Standards Board) issued a proposed accounting standard change for crypto assets.

The proposal contains two key points: first, defining the scope of crypto assets, and second, changing the accounting treatment of crypto assets from impairment to fair value measurement. The new proposal makes the original traditional accounting operation more closely related to the characteristics of crypto assets themselves and removes the shortcomings of only impairing crypto assets when they are down, but not when they are up to reflect the true position at fair value in accordance with the true market value, so that investors, regulators and other participants in the crypto industry can get the information they need more directly, clearly and accurately from an accounting statement. This is a huge positive for the industry as a whole.

As of June 6 for this proposal FASB on its official website solicits comment letters from the public, received from COINBASE, RIPPLE, DCG, Deloitte Deloitte, Elven and other 78 companies and institutions.

In these letters for the proposal, several companies and institutions expressed their positive support and thanked the FASB for its excellent contribution to the crypto industry moving forward. However, several companies made their own suggestions regarding the details of the provisions. In particular, Elven, a company with extensive hands-on accounting experience in crypto accounting, offered many detailed suggestions to the FASB.

Coinbase: Wrapped Tokens Should Be In the Scope of Crypto Assets

Coinbase mentioned that Wrapped tokens are an important aspect of the blockchain ecosystem with a market capitalization of over $50 billion. They believe that “these tokens should be in the scope of the proposed amendments if the underlying crypto asset meets the proposed scope criteria.”

A selected part from Coinbase’s comment letter:

A wrapped token is a tokenized representation of an underlying crypto asset with the same value. Instances where such tokens may exist include the ability to use the token on another blockchain or provide a simpler process to track tokens which are used in various decentralized finance (or DeFi) protocols. Additionally, wrapped tokens can support the trading of locked or restricted tokens, such as when Ethereum was locked for staking during its upgrade to the beacon chain. These wrapped tokens are actively traded on various decentralized and centralized exchanges, have readily determinable fair values, and exist specifically as a representation of another token.

Ripple: Rejecting a "one-size-fits-all" accounting framework

Under the new proposal, tokens “created or issued by the reporting entity or its related parties’ are excluded from the scope of crypto assets. In response, Ripple expressed their worries that “by scoping out certain crypto assets, it will inherently lead to diversity in accounting practices and disclosures for the out-of-scope crypto assets”

They believed that “developing a comprehensive and flexible (i.e., not one-size-fits-all) accounting framework for the ever-expanding universe of crypto assets, factoring in the respective holder’s differing business purpose and use case that best reflect its economics to drive appropriate accounting treatments, consistent and comparable disclosures across the entire industry. ”

Deloitte: Extended exploration of the accounting treatment of crypto assets

As the leading role in accounting, Deloitte also expressed the concern on the exclusion of ‘wrapped token’, and called for a more detailed guidance on the following aspects of the accounting for digital assets, among others, possibly in another phase of the project:

• The derecognition of crypto assets.

• The accounting for crypto asset lending, including consideration of recent views expressed by the SEC.

• The accounting for stablecoins.

• The accounting for nonfungible tokens (NFTs).

DCG: Guidance needed for different types of crypto assets

DCG believe the proposed ASU presents significant improvements to the current U.S. generally accepted accounting principles (“U.S. GAAP”) for crypto assets. Still, the following is a summary of examples thatmay require additional clarification and guidance but should not preclude the proposed guidance from being codified:

- Classification of various types of crypto assets (or “digital assets”) and transactions given the limited scope of the proposed ASU

- Derecognition of crypto assets and guidance on the method of cost basis tracking

-Recognition of digital asset tokens on a proof-of-stake protocol and how to consider staking rewards (locked up vs freely accessible) within the scope of the proposed ASU and ASC Topic 820, Fair Value Measurement (“Topic 820”)

Elven: Clarification of accounting standards for other crypto assets within the scope of tax regulation is needed

On the FASB's website, a newcomer to the crypto industry, Elven (elven.com), appears on the list of proposals. This is the most "professionally relevant" company among the 78 companies that submitted proposals. It offers a one-stop solution for automated accounting, financial reporting, tax filing and auditing services for clients, mostly crypto companies, asset managers and accounting firms.

Some bullet points from Elven’s comment letter:

1. Clarification of accounting method for crypto assets outside the scope of the proposal is needed, such as

a. Crypto receivables/payables

b. Crypto borrowings

c. NFTs

d. Investments, Pre-ICO

e. Wrapped tokens

2. Some Elven’s clients are financed by borrowing crypto assets, should such crypto liabilities also be measured at fair value.

3. Elven strongly recommend allowing early adoption and there is strong demand from their customers. They currently support the generation of statements and disclosure reports as required by the proposal, and many of their clients are already using these statements to provide information to investors and partners.

A quick intro about Elven: Elven is a leading practitionerin the crypto accounting industry, and it is the fastest rising on-chain accounting platform that has already provided professional accounting services to several large crypto businesses and institutions. With the Elven platform, finance teams can easily integrate data from different sources on-chain, exchanges, DeFi, banks, and custody. With Elven's automated categorization and custom categorization design, it is easy to automatically generate GAAP (US GAAP) or IFRS (International Financial Reporting Standards) compliant bookkeeping and financial reports for crypto transactions.

Elven already supports the disclosure requirements specified by FASB in the new proposal, including significant positions, restriction status and roll-forward of crypto assets activities during the accounting period. Of course, after the new proposal is officially implemented, Elven's professional team will further optimize and enhance the accounting statements to address the key points of the new proposal, making crypto accounting operations more convenient and efficient.

Figure1

Figure 1 shows the table of significant holdings generated by the Elven platform: disclosing information about the holdings of each significant crypto assets, including the name, cost basis, fair value, and the number of units held.

Figure 2

Figure 2 shows the restrictions table generated by the Elven, disclosing information on crypto assets subject to restrictions, including the fair value of the restricted crypto asset, the nature and remaining duration of the restriction, and circumstances that may cause the restriction to lapse.

Figure 3

Figure 3 shows the roll-forward table of Crypto Assets for the period: Discloses the changes from the beginning of the period to the ending balance, providing the changes for the period due to additions to crypto assets (e.g., purchases, customer collections, or mining activities), disposals (e.g., sales or fees used to pay for services), gains/losses (either realized or unrealized), etc.

Elven, as the world's leading on-chain accounting platform, not only cultivates its products, but also practices its corporate responsibility in this FASB request for comments. It also contributes to the positive development of the crypto industry. To keep up with the global crypto industry and have a full range of one-stop crypto assets accounting services, please visit the Elven.com platform.