FASB Excludes NFTs, Some Stablecoins From Crypto Accounting Project

The Financial Accounting Standards Board on Wednesday laid out its criteria for the assets it will include in its cryptocurrency projectparameters that left out nonfungible tokens and certain stablecoins.

The decision marked another step toward an eventual proposal and a final rule, which would fill a void for companies holding these assets and would provide more detail to investors.

For years, businesses and investors had asked the FASB for rules on how to account for and disclose their holdings of bitcoin and other digital assets, and for years the standard-setter had declined to do so, saying investment in crypto wasnt widespread among companies. In May, however, the FASB added the crypto project to the technical agenda that sets its rule-making priorities.

On Wednesday, the board outlined its criteria for the crypto assets that would be covered by a new rule. The subset of digital assets under the project would include those that are intangible, that is, non-financial assets that lack physical substance, and that dont carry contractual rights to cash flows or ownership of goods or services. The assets also must be fungible, meaning they are interchangeable and not unique.

The FASB didnt say which specific crypto assets it would exclude from the projects scope. However, the criteria indicate that NFTsdigital proofs of purchase for items such as art, baseball cards or digital music that can also provide access to live streamed concerts and other servicesand certain stablecoinscryptocurrencies pegged to assets such as the U.S. dollarwont make the cut.

NFTs are, by their very definition, nonfungible, and may carry rights to underlying goods, services or other assets. And certain stablecoins are intangible assets.

Popular crypto coins, such as Bitcoin and Ethereum, would fall within the rules scope.

FASB board member

Susan Cosper

defended the exclusion of NFTs from the project, saying they might slow it down.

Its not pervasive or material at this juncture, she said, referring to companies investments in NFTs. Its certainly something that we can focus on later if need be.

Given their exclusion from the project, accounting for NFTs and certain stablecoins will likely remain a headache for the companies that own them. Those that do generally account for crypto as indefinite-lived intangible assets, comparable to website domains and trademarks, based on nonbinding guidelines from the Association of International Certified Professional Accountants.

Under those guidelines, businesses must review the value of these assets at least once a year. Companies are required to write down the value if it drops below the purchase price, depending on the result of their impairment test. If the value rises, however, companies can record a gain only when they sell the asset, not if they continue to hold it.

Companies say this approach doesnt reflect their financial condition or operating results, given the exceptional volatility of many crypto assets, and they are instead pushing for fair-value accounting rules. Under this type of accounting, companies recognize losses and gains in value immediately and treat digital assets as financial assets, not as intangibles.

The FASB has said it would consider fair-value accounting, among other options, as part of the current project. Its standard could apply to U.S. public and private companies, as well as to nonprofit groups.

In recent months, individual investors as well as groups of analysts, such as Alliance of Concerned Investors and the CFA Institute, have pushed for the FASB to set rules on crypto accounting and disclosure to get a clearer picture of companies investments.

The FASB wants to wrap up initial discussions on its crypto project by year-end, when the board would vote on whether to issue a proposal, a spokeswoman said.

WSJs Dion Rabouin explains why many investors are still betting on crypto, even with the very real threat of losing all their money. Illustration: Rami Abukalam

Write to Mark Maurer at Mark.Maurer@wsj.com

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