Accounting Standard Updates
12 Days of SSAP: Accounting and Disclosure of Crypto Assets
Hot Take:
JLK Rosenberger is carrying on our holiday tradition of taking a new perspective on a holiday classic – the Twelve Days of Christmas. Rather than filling your head with turtle doves and gold rings, we are focusing on the latest changes to SSAP and how they will impact your insurance entity in 2024 and beyond.
In December 2023, FASB came out with a narrowly targeted accounting rule for crypto assets with the primary emphasis of recording these assets at fair value in contrast with the previous methodology of cost-less impairment model. It does not cover the entire universe of crypto assets, as this is a highly evolving financial category. Statutory accounting takes a more conservative view, so read on.
Full Article
The updates in ASU 2023-08 Intangibles – Goodwill and Other – Crypto Assets apply to entities holding crypto assets that meet the following criteria: they are intangible assets, fungible (interchangeable), not classified as financial assets or stable coins pegged to a currency, not supported by underlying collateral, reside on a distributed ledger using blockchain technology, secured through cryptography, and are not created by the reporting entity or its related entities.
Under the new guidance, crypto assets should be measured at fair value, with changes in value recognized in the income statement. This represents a shift from the previous guidance, where crypto assets were typically treated as indefinite-lived intangible assets and carried at cost unless impaired. Additionally, new disclosure requirements mandate that entities provide more detailed information, including the nature of the crypto holdings, the methods used for measurement, and any changes in fair value over time. Entities must also disclose any risks associated with holding crypto assets, improving transparency for investors.
Statutory Treatment
Regulators adopted ASU 2023-08 with modification, establishing a definition of crypto assets in statutory accounting. The definition of crypto assets was added as paragraph 4(f) in SSAP No. 20 to read the following:
“Crypto assets are defined as intangible digital assets in which transactions are created or reside on a distributed ledger based on blockchain or similar technology and are verified with records maintained by a decentralized system using cryptography, rather than by a centralized authority, and do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets. Directly held crypto assets do not meet the definition of cash in SSAP No. 2R—Cash, Cash Equivalents, Drafts, and Short-Term Investments, and due to the volatile nature of the assets and liquidity issues, the assets shall not be considered available to satisfy policyholder obligations”.
Guidance added to SSAP No. 20 clarifies that directly held crypto assets are non-admitted assets for statutory accounting. Revisions do not modify the general interrogatory disclosures that had previously been added to the Annual Statement blanks and instructions.
Additionally, as a result of the adopted guidance, INT 21-01 – Accounting for Cryptocurrencies has been nullified. INT 21-01 was originally issued in May of 2021 to clarify that directly held cryptocurrencies do not meet the definition of cash in SSAP No. 2R nor, when directly held, meet the definition of an admitted asset per SSAP No. 4.
Explore this topic further in a JLK Rosenberger article published earlier this year.
Effective Date for all entities: fiscal years beginning after December 15, 2024
