Legal Alert

FASB Proposes New Crypto Accounting Standards, SEC Alert Reinforces ‘Securities’ Enforcement Authority

by Marjorie J. Peerce, David L. Axelrod, and Nathaniel B. Botwinick
March 31, 2023


The past week was a busy one in the cryptocurrency sphere: The Financial Accounting Standards Board (FASB) proposed new standards for crypto assets, and the SEC released an alert urging investors to remain cautious about investing in “crypto asset securities.”

The Upshot

The FASB’s proposed guidelines would treat crypto assets more like traditional assets and would improve valuation accuracy. At the same time, the SEC appears to be doubling down on its stance that many crypto assets are securities—and risky investments.

The Bottom Line

Companies should engage experienced counsel to prepare for the upcoming changes to accounting standards and prepare for increased SEC enforcement action in the cryptocurrency arena.

The past week was a busy week for cryptocurrency regulation, with new accounting standards for companies holding cryptocurrency, while the SEC continued its crackdown on cryptocurrency, alleging widespread fraud in the industry.

First, the Financial Accounting Standards Board (FASB) issued a proposed accounting standards update for the accounting and disclosure of crypto assets. The same day, the SEC’s Office of Investor Education and Advocacy issued an investor alert urging investors to remain cautious about investing in “crypto asset securities” that reflected recent SEC enforcement actions and statements from SEC leadership that the industry is rife with fraudulent actors.

First, the FASB’s proposed accounting standards update for crypto assets should help investors. Currently, generally accepted accounting principles (GAAP) require companies to treat cryptocurrency holdings as “indefinite-lived intangible assets” on balance sheets. Under current GAAP, crypto assets are tested for impairment annually and more frequently if events or circumstances indicate that the asset is more likely impaired than not. If the carrying amount of the asset exceeds its fair value, an entity is required to recognize an impairment loss and reduce the carrying amount of the asset to its fair value. Subsequent increases in the carrying amount and reversal of an impairment loss are prohibited. In other words, companies that hold cryptocurrency may only report decreases and not increases in the value of crypto assets on their financial statements until the crypto assets are sold under the current rules for indefinite-lived intangible assets. The FASB crypto update aims to change this reporting to improve the accuracy of companies’ financial statements. For annual and interim reporting periods, the FASB proposes having companies disclose the following information:

  1. The name, cost basis, fair value, and number of units for each significant crypto asset holding, and the aggregate fair values and cost bases of the crypto asset holdings that are not individually significant.
  2. For crypto assets subject to contractual sale restriction(s), the fair value of those crypto assets, the nature and remaining duration of the restriction(s), and the circumstances that could cause the restriction(s) to lapse.

For annual reporting periods, the FASB proposes having companies provide the additional following information:

  1. A roll-forward, in the aggregate, of activity in the reporting period for crypto asset holdings, including additions (with a description of the activities that resulted in the additions), dispositions, gains, and losses. If gains and losses are not presented separately, the entity is required to disclose the income statement line item in which those gains and losses are recognized.
  2. For any dispositions of crypto assets in the reporting period, the difference between the sale price and the cost basis and a description of the activities that resulted in the dispositions.
  3. The method for determining the cost basis of crypto assets.

The FASB has proposed these changes to “provide investors . . . with decision-useful information.” The FASB believes these additional disclosures will provide “relevant information that reflects (1) the underlying economics of those assets and (2) an entity’s financial position.” In addition, this proposed measurement would align the accounting required for all holders of crypto assets with the accounting for other entities that have industry-specific guidance (e.g., investment companies) and eliminate the requirement to separately test those assets for impairment, thereby reducing the associated cost and complexity of applying the current guidance.

The FASB is inviting comments on the proposal through June 6.

The SEC Delineates Crypto Asset Risk

Following on the heels of the SEC Division of Enforcement’s recent enforcement actions, the SEC’s March 23 alert reflects SEC Chairman Gensler’s goal of ensuring crypto investors and crypto markets receive all the protections they would in any other securities market. The SEC’s Office of Investor Education and Advocacy listed four reasons why it viewed crypto assets to be risky investments: (1) those offering crypto asset investments or services may not be complying with applicable law, including federal securities laws; (2) investments in crypto asset securities can be exceptionally risky, and are often volatile; (3) alleged fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams, often leading to devastating losses; and (4) having an investing plan, as well as understanding your risk tolerance and time horizon, can be critical to your investing success.

The most notable warning of these four is the first one—the SEC continues to assert that crypto asset companies are violating federal securities law by failing to register with the SEC. In other words, the SEC continues to insist that many crypto assets are, in fact, securities that should fall under the SEC’s regulatory umbrella. Thus, we expect continuing SEC enforcement actions alleging this violation.


The FASB’s proposal, viewed in conjunction with the SEC’s alert, suggests that cryptocurrency regulation in America may be on a collision course with crypto companies. On one hand, the FASB is proposing new standards that would treat cryptocurrency holdings by companies more akin to normal assets. On the other hand, the SEC continues to urge investors to use caution with crypto assets. All of these developments serve as a reminder that cryptocurrency firms should engage legal counsel to help navigate this rapidly changing legal landscape.

Ballard Spahr’s Blockchain Technology and Cryptocurrency team and Securities Enforcement and Corporate Governance Litigation Group help clients develop and implement new products and help clients navigate the labyrinth of government regulation and enforcement. We also advise on issues related to blockchain technology and cryptocurrencies and help clients safeguard their data and the consumers who use it. In addition, we represent clients in matters related to cryptocurrency scams or thefts involving crypto wallets. Ballard Spahr provides comprehensive support at all stages of development, from formation and early-stage startups to large, commercial operations. Please call us for more information.

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