Nonprofits increasingly receive donations in the form of cryptocurrencies such as Bitcoin and Ethereum. As digital assets have become more common, so has the need for clear and consistent accounting standards. The Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2023-08 to help tax-exempt organizations recognize and report crypto donations. This new guidance took effect for fiscal years beginning after December 15, 2024, and nonprofits are permitted to adopt it early. If you haven’t already, get up to speed on the rules.
What does it change?
In the past, cryptocurrency holdings were recorded as indefinite-lived intangible assets under ASC 350, similar to the treatment of any trademarks or copyrights. ASC 350 required organizations to report crypto at the lowest value it reached since acquisition (referred to as “impairment”), even if the asset later regained or exceeded its original value. Such reporting can lead to distorted financial statements.
ASU 2023-08 introduces a significant change: Cryptocurrencies must now be measured at fair value, and any shifts in value must be recognized in the statement of activities. This enables you to:
- Report the current market value of crypto assets on financial statements,
- Recognize both gains and losses as they occur, and
- Reduce the need for complex impairment testing.
Note: These new rules apply to crypto assets that are intangible and fungible and that don’t provide enforceable rights to goods or services.
Implications for nonprofits
For charitable organizations, ASU 2023-08 has several important implications. First, nonprofit financial statements are likely to reflect the real-time value of crypto donations more accurately, thereby aiding your decision-making. Also, these rules replace a burdensome impairment model with a more straightforward fair value approach, saving you time and reducing audit complexities.
However, understand that fair value accounting will introduce more visible swings in the value of crypto donations, especially if you hold them for extended periods. Ensure you have access to reliable market data for valuing crypto assets. You may also need to review your organization’s internal controls regarding crypto custody and valuation.
Take action now
ASU 2023-08 uses a fair value model to align cryptocurrency accounting with reporting for other market-traded investments such as stocks. To prepare for the change, your nonprofit should review its crypto-related policies and consult with your board’s audit or finance committee to help ensure smooth implementation. Accounting for crypto remains a complex endeavor, so reach out to us.
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