In August 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, which provides guidance on the accounting and disclosure of crypto assets for organizations, including nonprofits. With the growing presence of cryptocurrencies and other digital assets in both investment portfolios and transactions, nonprofit leaders must familiarize themselves with these updated standards to ensure their financial reporting remains accurate and compliant.
This update, which falls under the Intangibles—Goodwill and Other section (Subtopic 350-60), introduces new rules regarding the recognition, measurement, and disclosure of crypto assets held by nonprofits.
Accounting standards previously required nonprofits (and other entities) to report most cryptocurrencies as long-lived intangible assets. This meant that they were initially recorded on a statement of financial position at their historical cost. Long-lived intangible assets must then be periodically “tested for impairment” or a diminution in value. In the event that a nonprofit finds its long-lived intangible asset has been impaired, the organization must record an “impairment charge” as an expense, and reduce the carrying value of the asset. Alternatively, when long-lived intangible assets increase in value, the change was effectively ignored in the financial statements. This is a strange accounting treatment for a commonly traded asset, such as Bitcoin. The intangible asset treatment required under US GAAP was originally written to address intangible assets such as trademarks, software code, patents, goodwill, etc. It never considered a readily priceable intangible assets such as Bitcoin.
What Is ASU 2023-08?
ASU 2023-08 offers clear guidance on the accounting for crypto assets, such as Bitcoin, Ethereum, and other cryptocurrencies, which have become increasingly relevant in the nonprofit sector. This includes assets that nonprofits might hold in their investment portfolios, as well as digital assets received as donations or used in transactions.
Historically, there has been some ambiguity in how to account for these assets, as cryptocurrencies do not fit neatly into traditional accounting categories. ASU 2023-08 provides a framework for recognizing, measuring, and disclosing these assets to improve consistency and transparency in nonprofit financial reporting.
Crypto assets are defined as digital assets that are secured using cryptography and operate on a decentralized network (e.g., blockchain technology). These include well-known cryptocurrencies like Bitcoin or Ethereum, as well as other digital tokens and non-fungible tokens (NFTs).
Nonprofits may acquire crypto assets in a variety of ways:
- Donations: Some nonprofits are receiving crypto assets as donations, similar to traditional cash or securities.
- Investments: Nonprofits may choose to invest in cryptocurrencies as part of their investment portfolios.
- Transactions: Crypto assets may also be used in exchange for goods and services, either through donations or direct payments for services offered by the nonprofit.
Measurement & Recognition
ASU 2023-08 introduces guidance on how nonprofits should measure and recognize crypto assets on their financial statements. The key principle is that crypto assets should be measured at fair value at each reporting date, with any changes in value recognized in the income statement.
The fair value of a crypto asset should be determined based on observable market prices, where available, or through other valuation techniques if market prices are not readily accessible. Changes in the value of crypto assets, whether positive or negative, must be recorded as unrealized gains or losses in the period in which the change occurs. This reflects the market volatility often associated with digital assets.
For nonprofits, this means that holding crypto assets could result in significant fluctuations in reported income, based on the market performance of the assets, similar to how investments in stocks or bonds are treated. While cryptocurrencies have characteristics similar to cash or securities, ASU 2023-08 classifies them as intangible assets because they do not have a physical presence and are not tied to any legal entity or financial instrument. However, unlike other intangible assets such as trademarks or patents, crypto assets do not get amortized (i.e., they are not systematically expensed over time).
This classification is important because it impacts the treatment of crypto assets when it comes to impairment and how their value is reflected on financial statements. Essentially, crypto assets are considered intangible and, therefore, do not undergo depreciation, but their fair value may fluctuate significantly over time, which will need to be recognized.
Disclosure Requirements
ASU 2023-08 also establishes new disclosure requirements to increase transparency in nonprofit financial reporting related to crypto assets. Nonprofits must provide detailed information about their crypto asset holdings, including:
- The types and amounts of crypto assets held,
- The valuation methods used to measure the fair value of those assets,
- The accounting treatment of gains or losses on these assets, and
- Any significant changes in the fair value of crypto assets that may have occurred during the reporting period.
The enhanced disclosure requirements will ensure that stakeholders—such as donors, board members, and auditors—have a clearer understanding of the nonprofit’s exposure to the volatility of crypto assets.
Implications for Nonprofits
For nonprofits that already hold, receive, or plan to invest in crypto assets, ASU 2023-08 will have several implications:
- Financial Reporting Changes: Nonprofits will need to update their accounting policies and procedures to account for crypto assets in accordance with the new fair value measurement rules. This may require working closely with finance teams to track market prices and manage the recording of unrealized gains or losses.
- Risk Management: Nonprofits should assess the potential risks associated with holding crypto assets, including market volatility, the risk of impairment, and the potential for fraud. Diversifying crypto asset holdings or using hedging strategies could help mitigate some of these risks.
- Enhanced Transparency: The new disclosure requirements will provide stakeholders with a more complete picture of a nonprofit’s financial standing and the role of crypto assets in the organization’s operations. Nonprofits should be prepared to provide clear and accurate information about how crypto assets are used and their impact on the nonprofit’s financial position.
ASU 2023-08 brings much-needed clarity to how nonprofits should account for and disclose crypto assets. As cryptocurrencies continue to gain traction as a form of investment and donation, nonprofits must stay ahead of these changes to ensure compliance and transparency. By understanding the key concepts of ASU 2023-08—such as fair value measurement, impairment rules, and disclosure requirements—nonprofit managers can ensure that their organizations navigate this evolving landscape with confidence.
Incorporating crypto assets into a nonprofit’s financial strategy can offer new opportunities, but it requires careful attention to accounting practices and an awareness of market fluctuations. By following the new guidance, nonprofits can better manage their crypto asset holdings and provide more transparent, accurate financial reports to their stakeholders.
The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years.