Fair value measurement

Why is it necessary to measure crypto assets at fair value?

The new proposal from FASB requires that crypto assets be separated from intangible asset accounting categories and measured at fair value, making it easy to see changes in the fair value of crypto assets, transaction costs, and holding costs.

Under current GAAP, crypto assets are recorded as intangible assets. In the rapidly changing market for crypto assets, if their book value exceeds their fair value, impairment losses must be recognized and the book value of the asset's fair value reduced. Even if prices rebound later and the fair value of a crypto asset increases, its asset amount and impairment loss cannot be reversed in accounting treatment.

In this new proposal, crypto assets will be listed separately on the balance sheet and measured at fair value with changes in fair value included in net income. At the same time, holders of large amounts of a particular type of crypto asset will be required to disclose their holdings in annual and interim financial reports. This will undoubtedly provide investors with more informative data to help them analyze and evaluate risks associated with specific types of crypto assets more accurately. It also reduces many troublesome issues related to investment activities within the crypto industry such as not requiring some investors to perform impairment tests on specific crypto assets which greatly improves efficiency within investment activities within this industry.

Accounting process for fair value measurement

The entity shall record the acquisition cost when acquiring crypto assets. When disposing of crypto assets, the realized gains and losses shall be recorded based on the difference between the disposal amount and the acquisition cost. On the reporting date, the difference between fair value and acquisition cost of crypto assets held by the reporting entity shall be recorded as unrealized gains or losses.

Assets are initially recognized at fair value. When acquiring crypto assets, the price of the transaction is the initial cost for measurement and recognition. Transaction costs related to acquiring crypto assets, such as commissions and other relevant transaction fees, are recognized as expenses when incurred.

When disposing of crypto assets, it is necessary to calculate profits and losses based on the difference between the disposal price and the cost basis. The matching rules for cost basis depend on the cost basis method you choose: FIFO, LIFO, HIFO, Specific ID, or weighted average method. FIFO is the default method of Elven. As an example, when disposing of crypto assets, you need to match costs from the earliest batch of this type of crypto assets. If there is insufficient balance in that batch, costs should be matched in chronological order from earlier batches to later ones.