Written by: Danielle MacKenzie, CPA, MSA
Key Points
- Two new accounting standards are fully effective this year: ASU 2023-08 on crypto assets and ASU 2023-05 on joint venture formations
- These standards change measurement and presentation requirements for 2025 financial statements
- Companies should confirm that their 2025 reporting reflects the updated requirements
Understanding the Standards Now in Effect for 2025 Reporting
With 2024 reporting now behind us, calendar year-end nonpublic entities are turning their attention to the 2025 reporting cycle. This year brings two notable Accounting Standards Updates (ASU) issued by the Financial Accounting Standards Board (FASB): ASC 2023-08, which changes how certain crypto assets are measured and disclosed, and ASU 2023-05, which establishes new recognition and initial measurement requirements for newly formed joint ventures.
Over the past several years, the volume of major standard-setting has slowed compared with the era of significant adoptions such as current expected credit losses (CECL), lease accounting, and revenue recognition. These two ASUs represent meaningful areas of focus for preparers as they evaluate their 2025 reporting and ensure compliance with updated guidance.
As nonpublic entities prepare their 2025 financial statements, both standards will be applied for the first time. They influence how certain transactions are measured, disclosed, and presented, and their impact spans a wide range of industries. Even if your business has limited involvement with crypto assets or joint venture activity, it is essential to determine whether you fall within the scope and whether your reporting reflects the required changes.
With these standards now in effect, this is an ideal time to take a clear and final look at what they require. Ensuring that fair value measurements, transition adjustments, and disclosures are in place will help streamline the reporting process and support the preparation of accurate and compliant financial statements for 2025.
ASU 2023-08: Accounting for and Disclosure of Crypto Assets
Summary
ASU 2023-08 provides guidance for accounting for crypto assets, including six criteria that assets must meet to qualify as crypto assets. These assets must meet the definition within U.S. GAAP of an intangible asset; do not give the asset holder enforceable right to, or claims on, underlying goods, services, or other assets; are generated or reside on a distributed ledger based on blockchain or similar technology, are secured through cryptography, are fungible, and are not generally or issued by the reporting entity or any of its related parties. The new standard does not apply to nonfungible tokens or to digital assets subject to existing U.S. GAAP, such as stablecoins.
Effective Date for Nonpublic Entities
Fiscal years beginning after December 15, 2024.
What Changed
Crypto assets must now be measured at fair value as of each reporting date, with any resulting gains or losses reflected in net income. This change replaces the historical cost-less impairment model and may introduce more volatility into earnings.
The standard also includes expanded disclosures related to asset type, valuation, and risk.
Financial Statement Presentation Impact
- Balance sheet: Present crypto assets separately from other intangible assets, measured at fair value
- Income statement: Present changes in fair value (gains and losses) that are included in net income separately from changes in the carrying value of other intangible assets.
- Cash flow statement: Present the sale of crypto assets as noncash consideration in the ordinary course of business. The ASU does not give other guidance on presentation and cash flows continue to follow the nature of the transactions, supported by ASC 230, Statement of Cash Flows.
Transition Adjustment
The standard requires a modified retrospective approach with a cumulative effect adjustment to opening retained earnings as of January 1, 2025. Businesses should ensure this adjustment is reflected and supported in their 2025 reporting.
ASU 2023-05: Recognition and Initial Measurement
Summary
ASU 2023-05 sets new requirements for the initial accounting of joint ventures. Under this guidance, a newly formed joint venture must apply a new basis of accounting and recognize contributed net assets at their fair value upon initial formation of a joint venture. This new guidance does not change the definition of a joint venture, an equity investor’s accounting for its investment, or the accounting by a joint venture for contributions received after formation.
Effective Date for Nonpublic Entities
Joint Ventures formed after January 1, 2025.
What Changed
A newly formed joint venture recognizes a new basis of accounting for contributed net assets as of the formation date. The joint venture will measure the contributed identifiable net assets at fair value on the formation date, measure the net assets’ fair value based on 100% of the joint venture’s equity immediately following formation, and record goodwill for the difference between the fair value of the joint venture’s equity and its net assets.
Financial Statement Presentation Impact
- Balance sheet: Present net assets at fair value at formation
- Income statement: Future depreciation, amortization, and impairment will reflect fair value amounts recognized at formation
- Cash flow statement: Cash flows follow the nature of the transactions based on fair values established at formation
Transition Adjustment
The transition method of this standard depends on the timing of the formation date. The standard will be applied on a prospective basis and affect all joint venture formations on or after January 1, 2025. A joint venture formed prior to that date may apply the amendments to the standard retrospectively, if the joint venture has sufficient information available.
Bringing These Standards into Your 2025 Reporting Process
With both ASUs now fully effective, nonpublic entities should verify that their financial statements reflect the correct measurement, presentation, and disclosure requirements. Confirming transition entries, providing fair value support, and ensuring compliance with the guidance enhances the accuracy and clarity of your 2025 results.
Strong documentation and thoughtful preparation help ensure that these updated standards are incorporated smoothly into your reporting process. If questions arise as you work through these requirements, the Walter Shuffain team can help you assess what applies to your business and guide you on how to address the changes within your reporting timeline. Our goal is to help you navigate these updates with clarity and confidence so your financial statements tell the whole story of your year.
Frequently Asked Questions
- How do I know if the new crypto asset accounting rules apply to my company?
The standard applies if you hold crypto assets that meet the scope criteria, including being intangible, fungible, cryptographically secured, and recorded on a blockchain. If you held any such assets during 2025, the fair value model applies. - What happens if my company did not record the adjustments for the new standards?
You will need to correct this during the reporting process to ensure the transition is applied correctly. Addressing it now helps avoid further complications in your financial statements. - How can I determine whether the entity we formed qualifies as a joint venture under US GAAP?
Review the structure, shared control, and purpose of the entity against the GAAP definition of a joint venture. If the entity meets that definition and was formed in 2025, the new fair value basis at formation is required. - What steps should my company take to prepare accurate 2025 financial statements under these standards?
Verify all fair value measurements, ensure the required transition entries were recorded, review your disclosures for completeness, and gather supporting documentation for valuations and formation activity.