The Financial Accounting Standards Board (FASB) Wednesday took another step toward setting new accounting standards for certain digital assets by narrowing the scope of the cryptoassets that the project will apply to, based on new criteria which leaves out nonfungible tokens (NFTs).
The freshly outlined scope of the standard-setter’s high profile initiative comes roughly three months after FASB unanimously agreed to prioritize its project to improve the accounting for and disclosure of certain digital assets by upgrading the issue to its technical agenda.
- The unanimous decision was reached after staff reported during a board meeting that many stakeholders preferred narrowly defining the assets to which the standards will ultimately apply, with some suggesting a phased broadening of the definition at a later time. “It’s important to stay grounded,” Board Member Marsha Hunt said, expressing her support for the decision at the meeting. “While some may feel it limits the scope of what we’re talking about I think it helps us define what will be an operable level.”
For the purposes of the standards, FASB decided that cryptocurrencies must meet five criteria, according to FASB spokesperson Christine Klimek.
They must comply with the GAAP definition of an intangible asset, they cannot provide the asset holder with enforceable rights to underlying goods, services, or other assets, they must be created or reside on a distributed ledger or blockchain, they must be secured through cryptography and they must be fungible, she wrote in an email.
The move to take up crypto in May marked a shift in FASB’s stance. In October 2020 it decided against doing so after determining the issue had not met the criteria of being “pervasive.”
But, board members have come around to recognizing the need for a better crypto accounting model as cryptocurrencies have been especially volatile this year and as the Securities and Exchange Commission have sought to safeguard investors, consumers and businesses against abuses.