AICPA updates practice aid for crypto accounting and auditing

The American Institute of CPAs has updated its practice aid for accounting and auditing of digital assets, with added material on cryptocurrency.

The latest edition includes nonauthoritative guidance on cryptoasset lending and borrowing, derivatives and mining. Some of the topics include evaluating whether a contract contains a derivative or an embedded derivative, how lenders should account for the crypto assets they have loaned, and how a borrower accounts for cryptoassets borrowed.

Other topics include how cryptocurrency miners should account for transaction fees and block rewards earned through their mining efforts, and how an entity that participates in a mining pool accounts for the arrangement.

Valuing cryptoassets has become a fraught topic for investors and businesses alike. While the value of virtual currencies like bitcoin, Ether and Dogecoin have been skyrocketing in recent years, the market has seen a steep dropoff. One technology company that invested heavily in crypto assets, MicroStrategy, disclosed last week that it had received a letter from the Securities and Exchange Commission objecting to the way it valued its assets, precipitating a sharp drop in the company’s stock price (see story).

The Financial Accounting Standards Board offers some limited guidance on how to account for such assets, but has come under pressure to offer more tangible rules. “Cryptoassets will not meet the definition of cash or cash equivalents (as defined in the FASB ASC Master Glossary) when they are not considered legal tender and are not backed by sovereign governments,” said the AICPA practice aid. “In addition, these cryptoassets typically do not have a maturity date and have traditionally experienced significant price volatility.”

Last year, FASB issued an invitation to comment on its research agenda and said in December it is considering potential ways to improve the accounting for and disclosure of intangibles (see story). However, more specific guidance on crypto would probably be welcome. In one comment letter submitted by the Chamber of Digital Commerce, representatives urged the board to add standard-setting for digital assets and cryptocurrency to the near-term agenda.

The AICPA practice aid was first issued in 2019 and is based on professional literature and experience from members of the AICPA Digital Assets Working Group and the AICPA staff. It contains nonauthoritative guidance on how to account for and audit digital assets under U.S. GAAP for nongovernmental entities in addition to generally accepted auditing standards.