Ernst & Young (EY) has announced updated accounting guidance for digital assets, aligning with new US GAAP regulations, marking a significant shift in how businesses recognize and report crypto on their financial statements.
Under the new regulations, applicable digital assets will be measured at their fair value at each reporting period, and any change in value will be directly reflected in net income. This approach replaces the old "cost-less-impairment" model, which only recorded losses when an asset depreciated but did not fully reflect any appreciation until sale.
EY argues that switching to fair value helps financial reporting more accurately reflect market realities, especially for companies holding Bitcoin or other highly volatile digital assets.
Stablecoins and Non-Fungible Token need to be handled separately.
Besides popular crypto assets like Bitcoin or Ethereum, EY notes that stablecoins and Non-Fungible Token require careful analysis and classification. In many cases, these assets are still classified as intangible assets, but their recognition will depend on:
- The stability level of the price Peg mechanism (for stablecoins)
- Economic and legal rights associated with Non-Fungible Token
- Nature of use (investment, payment, or internal utility)
This requires businesses to carefully assess the nature of each type of digital asset instead of applying a single approach.
EY launches specialized crypto tax service.
Alongside the updated accounting guidance, EY also launched a tax and compliance advisory service specifically for digital assets, to help businesses prepare for new reporting requirements expected to take effect from 2025. This service includes:
- Assistance in determining tax obligations related to crypto.
- Consulting on transaction structuring and risk management.
- Prepare accounting and reporting systems that comply with the new standards.
EY believes that as regulations become clearer, businesses need to upgrade their internal control systems and reporting processes to avoid legal risks and financial misstatements.
Impact on businesses holding crypto.
The application of the fair value model may increase volatility in financial reporting, especially for companies with large digital asset holdings. However, experts believe this change helps the market gain a more transparent and realistic view of a company's digital asset value.
