NFTs and Some Stablecoins Will Be Excluded From the FASB’s Digital Assets Project

by
Crypto Regulation
NFTs and Some Stablecoins Will Be Excluded From the FASB’s Digital Assets Project

The Financial Accounting Standards Board (FASB) has reportedly left out non-fungible tokens (NFTs) and several stablecoins from its digital asset accounting project.

FASB Establishes Digital Assets Rule Criteria

According to a report by the Wall Street Journal (WSJ), the FASB on Wednesday outlined parameters for a plethora of virtual assets that would be covered by a rule governing how businesses will account for and disclose their holdings of such assets.

The WSJ report indicated that the FASB outlined five specific criteria that will have to be met for crypto assets to be covered by the yet-to-be-determined rules.

According to the report, digital assets must meet the definition of intangible assets as outlined by the Generally Accepted Accounting Principles (GAAP).

Additionally, crypto assets should not provide their holders with contractual rights to cash flow or ownership of goods and services.

The FASB criteria will also require that digital assets must have been created on blockchains or be stored on them.

Lastly, the Board agreed that crypto assets must be fungible if they are to be covered by the rule.

According to Sally Bishop, an FASB practice fellow, the criteria were recommended for a number of reasons. For instance, the intangible assets requirement is intended to exclude assets that are already being regulated by the FASB, including securities and fiat currencies.

Similarly, the requirement that crypto assets must be on blockchains is meant to exclude assets like software, data, or media, which may have been roped into the digital assets project by less specific wording.

Rule Excludes NFTs and Stablecoins

While the FASB did not explicitly indicate which digital assets wouldn’t be covered by the accounting project, the proposed criteria indicates that NFTs and some stablecoins will probably not make the cut.

NFTs, as the name indicates, are non-fungible and often carry rights to underlying goods and services as they usually act as digital proofs of ownership of items such as art or virtual property.

Some stablecoins, on the other hand, are pegged to assets such as gold or fiat currencies such as the US dollar, meaning they fall outside GAAP’s definition of intangible assets.

However, popular cryptocurrencies such as Bitcoin (BTC) and Ether (ETH) fall cleanly within the parameters of the digital assets rule. 

The FASB does not currently wish to consider NFTs for guidance as it considers them a relatively new innovation that does not yet warrant attention.

Defending the exclusion, FASB board member Susan Cosper said, “It’s not pervasive or material at this juncture. It’s certainly something that we can focus on later if need be.”

Crypto Accounting Rules Long Overdue

Following the explosion of crypto assets into the mainstream, investors have wanted clear-cut guidance on how to disclose and account for their digital assets. However, for a long time, the FASB declined to come up with such rules, stating that investment in crypto wasn’t widespread in the mainstream market.

But in May this year, the Board finally added the digital assets project to its technical agenda and formally acknowledged it as a rule-making priority.