The American Institute of CPAs (AICPA) has updated its guide, “Accounting for and Auditing of Digital Assets,” which provides critical information on how to account for and audit digital assets. The nonauthoritative guidance in the 2020 update focuses on investment company/fund vehicles. Importantly, the guidance addresses accounting for investments in and trading of digital assets, as well as fair value. Specialized guidance for holding stablecoins within an investment portfolio is also included.
The 2020 update, which should be used in conjunction with the 2019 guide, adds 13 new Q&As for audit professionals to help their clients in the ever-evolving digital asset space. The real world experience of members of the AICPA Digital Assets Working Group was key in making the changes.
The new guidance is divided into the following five areas:
- Meeting the Definition of an Investment Company when Engaging in Digital Asset Activities
- Accounting by an Investment Company for Digital Assets it Holds as an Investment
- Recognition, Measurement, and Presentation of Digital Assets Specific to Broker-Dealers
- Considerations for Crypto Assets that Require Fair Value Measurement
- Accounting for Stablecoin Holdings
More on Fair Value Measurement
Fair value measurement continues to be a significant topic for analysis and discussion within the digital asset ecosystem. One such topic encountered frequently in determining the fair value for digital assets is the identification of the principal market and the consideration and impact of prices in different, relevant markets. The principal market may not always be the most advantageous price or may not provide a reliable price, thus the guidance addresses these concerns and provides example criteria for assessing the markets in which digital assets are traded to determine the appropriate inputs or techniques for determining the fair value.
How Does the Guidance Impact Stablecoins?
As stablecoins are becoming a more prevalent digital asset in the marketplace, it was imperative for the new guidance to address them. The guidance acknowledges there are different types of stablecoins and that a “one size fits all approach” is not appropriate. It does not give a definitive response on the treatment for each type of stablecoin; however, it does include a series of questions to ask so investment companies can evaluate their situation. For example, you must:
- Consider the rights, obligations and legal form of the stablecoin holder;
- Determine if the stablecoin issuer is pooling resources to support the stablecoin; and
- Assess the stablecoin’s redeemability and whether there are any credit or liquidity concerns.
Depending on the answers to these and the numerous other questions outlined with the guide, a stablecoin holding may be an investment in an equity security, an investment requiring the equity method of accounting or some other type of financial asset.
The 2020 guide is a much needed, thoughtful step forward in helping our clients. We appreciate the opportunity to continue to work with the AICPA and other firms to openly share our experience and exchange ideas to contribute to a better understanding of the digital asset space.
Contact Corey McLaughlin at firstname.lastname@example.org or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.