Developing Effective Entrepreneur and Enhancement Tools
Developing Effective Entrepreneur and Enhancement Tools
By Gary Rushin, CPA
Learn how digital assets are classified, measured, and disclosed—and why fair value accounting reshapes reported earnings.
Discover the controls, disclosures, and risk practices needed to manage digital assets and maintain investor-ready financial statements.
Understand how evolving IRS, FASB, and SEC rules affect digital asset tax, reporting, and compliance obligations.
Intangible assets are non-physical resources that provide value to a business or individual, such as patents, copyrights, trademarks, and increasingly, digital assets. In the digital asset industry, intangible assets now encompass crypto assets, non-fungible tokens (NFTs), and other digital tokens. These assets are recognized for their ability to generate economic benefits, even though they lack a tangible presence.
Companies generally classify digital assets as indefinite-lived intangible assets. Digital assets, including crypto assets and NFTs, are generally classified as indefinite-lived intangible assets. Companies record them at cost and subject them to impairment testing. The fair value of digital assets is a critical consideration, as it directly impacts financial statements and investor perceptions.
Accounting standards impose stringent disclosure requirements for intangible assets. Companies must clearly outline their accounting policies, the methods used to determine fair value, and any significant changes in the value of these assets. Transparent reporting ensures that stakeholders understand the nature and risks associated with digital assets, supporting informed decision-making and regulatory compliance. As the digital asset industry evolves, staying current with accounting guidance and disclosure requirements is essential for businesses and investors alike.
Individuals and entities can securely own, collect, trade, or invest in digital assets online. These assets store value electronically and record ownership on technologies such as blockchains. Digital assets can be bought, sold, owned, transferred, or traded. They can include digitized items of value, such as photos, loans, or money, and can also represent claims on physical things.
This page serves accountants, finance professionals, business owners, and others responsible for managing or reporting digital assets.
Regulatory changes, such as new FASB and IRS rules, are rapidly evolving and impact how digital assets are measured, reported, and taxed.
Digital assets have significant tax implications, including new requirements for wallet-by-wallet tracking and broker reporting.
Accurate financial reporting is essential for compliance, investor transparency, and risk management in a volatile and innovative asset class.
Digital asset accounting involves recording tokens such as Bitcoin and NFTs in cryptographically secured ledgers. Digital assets are items of value that can be securely owned, collected, traded, or invested in online. They can include digitized items of value, such as photos, loans, or money, and can also represent claims on physical things. Digital assets can also serve as virtual currency, substituting for real currency in some contexts.
Bitcoin, introduced in 2009, is the first digital asset and serves as a key example for understanding digital assets. The decentralized ethos of the digital asset ecosystem has enabled innovation at unprecedented speed.
Digital assets encompass a wide variety of assets that exist in digital form and are recorded on a blockchain or distributed ledger. Key types include:
Crypto assets: Decentralized digital assets such as bitcoin and ether that function independently of traditional financial institutions and central authorities.
Non-fungible tokens (NFTs): Intangible assets representing unique ownership rights to digital or physical items.
Security tokens: Digital representations of investment interests or entitlements.
Decentralized finance (DeFi) tokens: Enable financial services without intermediaries.
Stablecoins: Designed to maintain a stable value, often pegged to a fiat currency.
Other digital assets: A diverse group including tokenized physical assets, digital claims, and various blockchain-based instruments that represent value, ownership, or rights beyond cryptocurrencies and NFTs.
Other digitized items: Such as photos, loans, or money, and claims on physical things.
Each type of digital asset carries distinct characteristics, uses, and risks, requiring companies and investors to understand the specific accounting and regulatory considerations for each asset.
Some digital assets may qualify as financial instruments or financial assets under accounting standards, which affects their classification, measurement, and disclosure in financial statements.
With an understanding of the various types of digital assets, we can now explore how these assets are accounted for under different standards.
Under US GAAP, digital assets are generally accounted for as indefinite-lived intangible assets, recorded at cost and subject to impairment testing.
The FASB’s ASU 2023-08 requires certain digital assets to be measured at fair value through net income, replacing the previous cost-less-impairment model.
In-scope crypto assets must be presented separately from other intangible assets on the balance sheet.
Fair value accounting means price swings will directly impact reported net income, leading to increased earnings volatility for businesses.
The new guidance applies to both public and private companies, except those using industry-specific US GAAP.
Under IFRS, digital assets may be classified as inventory if held in the ordinary course of business, or as intangible assets otherwise. The accounting and regulatory treatment of certain crypto assets under IFRS requires careful consideration of classification, impairment, and fair value measurement.
Digital assets received as noncash consideration for goods or services are measured at fair value, but the timing of measurement may differ from US GAAP.
The primary difference between US GAAP and IFRS is that US GAAP now requires fair value measurement for certain assets, while IFRS often allows for cost measurement.
The inherent price volatility of digital assetsrequires continuous monitoring for fair value measurement and potential impairment.
When an impairment is recognized on crypto assets accounted for as intangible assets, a description of the circumstances leading to the impairment must be included in the disclosures.
Disclosures must include:
Financial statements disclosures as required by accounting standards, with the reporting entity responsible for presenting, separating, and describing crypto holdings, impairments, and risk factors to ensure transparency and compliance.
Accounting policies and principles are applied to the accounting for crypto assets.
Methods used to measure fair value.
Significant crypto asset holdings, including additional disclosures of significant holdings and a reconciliation of the beginning and ending balances of crypto assets.
Reconciliation of the beginning and ending balances of crypto assets.
Significant concentrations of risk.
Significant subsequent events related to crypto assets, such as major value changes after period end.
For in-scope crypto intangible assets, specific disclosures are required in both interim and annual reporting periods under US GAAP.
The SEC provides guidance on accounting for digital assets through staff accounting bulletins and public remarks.
The SEC’s Division of Corporation Finance has issued comment letters to registrants regarding the accounting for digital asset transactions, prompting restatements.
The SEC issued SAB 121 to help registrants account for obligations to safeguard crypto assets, which was later rescinded by SAB 122.
As digital asset accounting standards evolve, companies must stay informed about new guidance and regulatory updates to ensure compliance.
Buying, selling, exchanging, or otherwise disposing of digital assets. Selling or exchanging digital assets can result in a profit, which must be reported as income or capital gains for tax purposes.
Receiving digital assets as payment for goods or services.
Using digital assets for investments, payments, or storing value.
Under U.S. tax law, digital assets are treated as property, not currency.
You may have to report transactions involving digital assets, such as cryptocurrency and NFTs, on your tax return.
On federal income tax returns, you must answer ‘Yes’ or ‘No’ to a question about digital assets.
If you answer Yes, you must identify and report your digital asset transactions, whether or not they result in a taxable gain or loss.
Steps for Tax Reporting:
Recordkeeping: Keep records that document your digital asset transactions to establish the positions taken on federal income tax returns.
Income Reporting:
If you received digital assets for goods or services, the income is taxed as ordinary income or a loss.
If you sold, exchanged, or otherwise disposed of a digital asset held as a capital asset, use Form 8949 to report the transaction.
The basis of a digital asset is generally its cost in U.S. dollars.
Wallet-by-Wallet Tracking: As of January 1, 2025, the IRS requires wallet-by-wallet tracking of the cost basis and holding periods for digital assets.
Broker Reporting: Beginning in early 2026, brokers must report gross proceeds from digital asset transactions on Form 1099-DA, as required by changes to Internal Revenue Code §6045.
Businesses must perform due diligence on third-party service providers regarding custody of digital assets following regulatory changes in 2025.
The IRS will not impose penalties for failure to file and furnish Forms 1099-DA if the broker makes a reasonable good-faith effort to file them correctly and on time.
Digital asset transactions can be subject to market manipulation and other risks, with limited regulatory protections.
The use of smart contracts and distributed ledger technology can help facilitate transactions and reduce fraud risk.
Understanding the tax and reporting requirements for digital asset transactions is essential for compliance and risk management. Next, we examine how these transactions impact financial reporting.
Financial statements must include:
The nature and amount of digital assets held.
The accounting policies and procedures used to measure the fair value of digital assets.
Associated risks, including market, credit, and operational risk.
Significant crypto asset holdings and a reconciliation of the beginning and ending balances.
Any significant subsequent events related to crypto assets.
Financial statement disclosures specific to crypto assets, including how crypto holdings, impairments, and related risk factors are presented, separated, and described in accordance with relevant accounting standards and regulations.
The use of digital assets can impact a company’s financial statements, including the balance sheet and income statement. In some cases, digital assets may be classified as financial assets, which affects how they are measured and disclosed under relevant accounting standards.
Financial ratios and metrics, such as return on assets and return on equity, may also be affected.
Financial reporting requirements for digital assets are evolving, with new guidance and regulations being issued by the SEC and other regulatory bodies.
Companies must stay up to date with the latest developments to ensure compliance.
Clear and transparent financial reporting is critical for investor confidence and regulatory compliance. The following section covers specific disclosure requirements.
Disclosure requirements for digital assets depend on both the type of asset and the regulatory jurisdiction.
In the United States, the SEC mandates that public companies provide detailed disclosures about digital asset transactions, including:
The nature, amount, and accounting treatment of such transactions.
Any material risks related to digital asset transactions, such as exposure to market manipulation or money laundering.
Under US GAAP, companies must report:
The fair value of digital assets.
The methods used to measure fair value.
Any significant concentrations of risk associated with these assets.
The FASB has issued guidance emphasizing the importance of fair value measurement and transparent disclosure of risks and uncertainties related to digital assets. Financial statements disclosures should clearly present and separate crypto holdings, impairments, and risk factors, ensuring compliance with relevant accounting standards and regulations.
Adhering to these disclosure requirements helps ensure that investors and stakeholders have a clear understanding of a company’s digital asset holdings and associated risks. Next, we discuss how digital assets are presented in financial statements.
Financial statements for companies that hold digital assets must include:
The fair value of digital assets held.
The accounting policies and procedures used to measure fair value.
Accurate financial statement presentation of digital assets is crucial to ensure transparency, compliance, and proper disclosure of these holdings.
Statements must be presented clearly and concisely, with sufficient detail for users to understand the company’s digital asset holdings.
The use of digital assets can impact financial ratios and metrics, including return on assets and return on equity.
Companies must carefully consider the presentation and disclosure of digital assets to ensure compliance with regulatory requirements.
Proper presentation in financial statements is essential for transparency and compliance. The following section addresses internal controls and risk management.
Companies that hold digital assets must have internal controls in place to manage associated risks. This is critical. The entity responsible for holding private keys or custody of digital assets, such as custodians or ETF providers, must be clearly identified and subject to these controls.
Procedures should be established to securely store digital assets, leveraging blockchain technology to control and prove ownership without third-party intervention.
Internal controls must be designed to prevent and detect fraud, including money laundering and terrorist financing.
Risk management procedures should address:
Market risk
Credit risk
Operational risk
The use of digital assets may require forensic accountants and other specialists to ensure robust internal controls.
Having adequate internal controls and risk management is vital for safeguarding digital assets and ensuring regulatory compliance. Next, we look at audit and assurance requirements.
Audit and assurance requirements for digital assets are evolving, with regulatory bodies issuing new guidance and regulations. Companies must have audit and assurance procedures in place to ensure the accuracy and completeness of digital asset transactions.
The use of digital assets can impact audit and assurance procedures, including the need for specialists in digital asset accounting and auditing. Audit and assurance procedures must be designed to prevent and detect fraud, including money laundering and terrorist financing.
Robust audit and assurance processes are essential for maintaining trust and meeting regulatory expectations. The following section reviews the regulatory environment for digital assets.
The regulatory environment for digital assets is evolving, with new guidance and regulations being issued by regulatory bodies.
SEC staff have issued guidance and public statements regarding the regulation and oversight of digital assets, influencing accounting practices and regulatory expectations.
Digital assets are being integrated with global financial services, including the launch of digital asset exchange-traded products in the United States. These assets are often stored and transacted on blockchain or similar technology, such as distributed ledgers, which serve as the foundational infrastructure for digital asset accounting and classification.
Companies must stay up to date with the latest regulatory developments to ensure compliance. The reporting entity is responsible for disclosing risks, asset classifications, impairments, and obligations related to digital assets, ensuring transparency and adherence to accounting standards.
The use of digital assets can impact a company’s regulatory requirements, including the need for licenses, registrations, approvals, and permits.
Staying informed about regulatory updates is crucial for compliance and strategic planning. The following section addresses tax implications.
Investing in digital assets offers both exciting opportunities and significant risks. The digital asset industry is characterized by rapid innovation, with new crypto assets, tokens, and investment vehicles emerging regularly. Market capitalization for digital assets can fluctuate dramatically, reflecting the high volatility and speculative nature of this asset class.
Before investing in digital assets, investors should carefully assess their risk tolerance and investment objectives. The value of crypto assets and other digital investments can change rapidly due to market sentiment, regulatory developments, and technological advancements. Understanding the underlying technology, such as blockchain and distributed ledger systems, is crucial for making informed investment decisions.
The digital asset industry also offers unique investment opportunities, including decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and tokenized securities. However, these opportunities come with challenges, including regulatory uncertainty and the potential for market manipulation. Investors are encouraged to stay informed about industry trends, regulatory updates, and best practices for digital asset investments to navigate this dynamic market successfully.
Broker compliance and regulation are foundational to the integrity and transparency of the digital asset industry. The Securities and Exchange Commission (SEC) has established clear expectations for brokers handling digital asset transactions, emphasizing fair value measurement and comprehensive disclosure requirements. Brokers must ensure that all digital asset transactions are accurately recorded and reported in accordance with SEC guidance and staff accounting bulletins.
The SEC regularly issues staff accounting bulletins and comment letters to clarify reporting obligations and address emerging issues in digital asset accounting. These communications provide essential guidance on the application of fair value measurement, the disclosure of significant transactions, and the identification of risks associated with digital assets. In addition, the Financial Industry Regulatory Authority (FINRA) has issued supervisory guidance to help brokers monitor and manage digital asset transactions effectively.
Compliance with these regulations is critical for maintaining investor confidence and supporting the growth of the digital asset industry. Brokers must implement robust internal controls, adhere to disclosure requirements, and stay current with evolving regulatory standards to ensure the fair and transparent reporting of digital asset transactions.
The tax treatment of digital assets is complex and varies based on the type of asset, the nature of the transaction, and the taxpayer’s individual circumstances.
In the United States, the IRS treats digital assets as property, not currency, meaning gains or losses from digital asset transactions are generally subject to capital gains tax.
Taxpayers must report all digital asset transactions—including purchases, sales, exchanges, the sale of digital assets, and the use of digital assets for payment or compensation—on their tax returns.
Accurate records must be maintained for each transaction, including the calculation and reporting of any profit realized from the sale of digital assets for tax purposes.
The IRS has provided guidance on reporting requirements, such as the use of Form 1099-K for certain digital asset transactions, and clarified the tax implications of receiving digital assets as payment for services.
Forensic accountants and tax professionals play a crucial role in helping individuals and companies navigate the tax implications of digital asset transactions.
Staying informed about evolving tax guidance is essential to minimize risk and avoid penalties related to digital asset investments and transactions. Next, we outline best practices for digital asset accounting.
Companies must have best practices in place for digital asset accounting, including:
Adhering to accounting standards and regulatory guidance.
Ensuring the accuracy and completeness of digital asset transactions.
Managing risks associated with digital assets, including market, credit, and operational risk.
Engaging specialists in digital asset accounting as needed.
Companies must carefully consider and regularly update their best practices to ensure compliance with regulatory requirements and industry standards.
Summary of Major Aspects Addressed:
US GAAP and IFRS treatment of digital assets, including fair value and impairment.
Tax and reporting requirements, including new IRS and broker rules.
Disclosure and audit requirements, with emphasis on transparency and risk.
Risk management and internal controls for safeguarding digital assets.
Regulatory updates and the evolving compliance landscape.
By following these guidelines and staying informed about regulatory changes, companies and professionals can effectively manage digital asset accounting, reporting, and compliance.
Digital assets represent a transformative, rapidly evolving asset class that is reshaping the landscape of finance, investment, and accounting. As companies and investors increasingly engage with digital assets, the need for robust accounting practices, transparent reporting, and regulatory compliance has never been greater. The digital asset industry offers significant growth and innovation potential, but it also poses challenges such as market manipulation, money laundering, and evolving regulatory requirements.
Looking ahead, the future outlook for digital assets is promising, with continued adoption by businesses, financial institutions, and individual investors. However, the risks associated with digital assets—ranging from volatility to compliance obligations—underscore the importance of transparency, accountability, and adherence to best practices in accounting and reporting. By staying informed about regulatory changes and industry developments, companies and investors can navigate the complexities of digital asset accounting and position themselves for long-term success in this dynamic market.
Gary Rushin is a CPA, former Wall Street analyst, and turnaround executive who specializes in forensic financial analysis and building investor-ready companies. With experience as a CEO, CFO, banker, and educator, he helps founders and finance leaders uncover the real story behind the numbers, strengthen governance, and avoid costly financial blind spots. Through Gary Rushin Unplugged and WealthE Skool, he teaches practical frameworks that blend accounting rigor with strategic decision-making—empowering leaders to detect risk early and manage companies with confidence. Gary Rushin holds a Master of Science in Computer Science and is a member of the American Institute of Certified Public Accountants (AICPA). He is also a former Certified Information Technology Professional (CITP) and member of the AICPA, Information Technology Research Subcommittee.