Volledige transcriptie van Understanding ASU 2023-08 and Fair Valuing Your Digital Assets With Mike Andrusko of Centri Business Consulting

historical SEC reporting knowledge from the traditional market standpoint and then applied it to the FinTech crypto side of things. 00:04:45.035 --> 00:05:50.045 Yeah. And coming with all that legacy knowledge with understanding US gap , um, a lot of the technical areas when it comes to where you're assisting clients and then just like you said, parlaying that into the digital asset base , which are seeing funky stuff pop up all the time. So, so understanding, let , let's dive into the new standard. I shouldn't say new anymore, right? It's been out for almost a year and a half or so. But what , what we're seeing here at Ham , and I'm sure you guys are seeing are now that there's a full year under a lot of companies about , particularly on the public company side that they've adopted back in Q1 of 24, had their 10 Ks issued now or soon to be issued. Here we are at late March and , and kind of following that fact pattern and the disclosure point of view can , let's, let's start with what is the fair value standard, right? So a SU 20 23 0 8 came out in December, 2024, and it was long awaited guidance that we've as an industry, working with an industry have been waiting for, but why don't you give us a , a little 1 0 1 on , on what this new A SU is and and how it relates to a lot of digital asset companies. 00:05:50.944 --> 00:09:56.294 Of course. Yeah. So really what it meant to do was take what was the intangible asset guidance that was being applied to digital assets in the past and, and kind of transition a little bit from that cost versus impairment treatment to fair value, right? So really what was happening in the past is, you know, if you bought any sort of digital assets, you're holding them on your balance sheet at that initial cost basis. And as we know, it's a very volatile market. As you were going through periods of declining prices, you're taking a look at that and if you're transacting or finding other impairment indicators per your accounting policy, you're writing down that value of that asset on your balance sheet. Um, and it's running through impairment expense. And then as you kind of continue to report on a go forward , you're stuck at that impaired value until you sell that asset and recover it. And then you might have a realized gain or loss. And really what was happening with that was that you now have this depressed price asset on your balance sheet and say the market goes back up, which invariably will, you're not able to recognize that uptick in value on your balance sheet. So it's gonna be depressed to impairment. And then, you know, when you report that to your bank, your board, your investors on your, you know, SEC filings, it has a non true value on that balance sheet because it's stuck at that impaired value. So if an investor's looking at that and the price of Bitcoin is double since then, they're not gonna see that on your balance sheet. It's not gonna be reflected on your balance sheet. And a lot of people had a problem with that as they rightfully should. So really what this guidance is meant to do is make the value of the digital assets, it's still kind of running through a tangible asset guidance, but it's got more of a subsection for the digital asset fair value side of things. So now what you're able to do is essentially go through, take a look at each of your assets, and again, this is not gonna apply across the board, right? There's still some things that from a gap standpoint are not going to be applicable to the fair value guidance. Um, you know , it still has to make sure it touches upon and intangible asset guidance for the codification, it can't have any sort of enforceable rights, right? So a lot of the times when you see wrap tokens or, or some other defi assets, they could be scope outta this from that enforceable rights standpoint. And then really it's also if companies are creating their own token, typically wouldn't be applicable to fair value, right ? If they're minting their own or they're getting tokens that are issued by a related party and wanna make sure that it's, you know , fungible as well, right? So that's where kind of nfps kind get scoped out of this guidance for the most part. And a lot of stable coins as well, right? If they meet the definition of financial instruments, so you're tether SDC typically get picked , scoped out, but for the most part, right, they're gonna be pegged to a dollar. There's really not a ton of fair value volatility there. And really what you're then doing is taking those assets that are now step one is the scoping, right? So once they're in or outta scope, the ones that are outta scope, we'll continue to go through kinda that costless impairment unless there's another applicable guidance applicable to it. And then what you're then gonna do is for each of those assets, we're gonna take a look and say , alright , what's the principle market for each of those ? Um , how do we determine , you know , A , what do we have access to B you know , what are some of the volumes of the most popular exchange for that particular asset , and how often are we trading on it, right? So say you're an American company, you're not necessarily gonna be relying on, you know, exchanges that are outside the United States, right? Because you're not necessarily either gonna a , have access to them. And a lot of the times, you know, their , their volume may not necessarily be as high as the ones that are more domestically available that are applicable. So then you're able to kind of take a look at those assets, take that fair value based on the principal market, and now you're gonna do like any traditional investment or fair value asset, you're gonna market to market on a quarterly annual basis, depending if you're , you know , SE file do quarterly , and if you are maybe a private company, you'll go more on the annual side of things. But essentially now you're able to properly reflect the true value of that asset at that given

point in time at quarter end period end based on that scoping understanding and then going through that fair value guidance from a market standpoint. So really it's kind of now when you're comparing the two , say the price went up after it went down, you now have that appreciated value on your balance sheet versus in the past it was sitting still at, at costless there . 00:09:57.125 --> 00:11:18.315 And , and that's what I was just gonna say. I think from the reader's perspective, right? Reading financials, when they're ultimately issued a couple months after the reporting period, at least it's gonna show a better financial position of where the balance sheet is, where the company is from a , a cash or cash like instrument, right? If they're gonna use Bitcoin to pay vendors or whatever it might be, or investments, but you're not really driving down that value, which wasn't indicative of a lot of companies, I mean, of their, what they can do with their investments. Because I still have some companies now that they've adopted new standard, but we're holding Bitcoin at sub a thousand dollars per token. And it was just because it's been impaired so low for such a long period of time, obviously the balance sheet didn't show anywhere close to what the company's position was. But going through that analysis, the , the legacy accounting of cost less impairment, can you tell us some of those challenges that you experienced working with companies and, and kind of going through a lot of that minutia, sifting through all that legacy to find the lowest possible cost because , um, I believe it was an SEC comment letter that came out this time a year ago or the year before, where we finally got a little clarity of what that low price should be, the lowest po possible intraday value, because I think a lot of companies were just using a closed price or whatever was readily available that they could obtain. So getting that clarity helped , but going through that analysis from an accounting standpoint was a nightmare. . 00:11:19.264 --> 00:13:49.154 Yeah. So it was definitely good. And , and again, you know , everyone was kind of trying to do their best with the information they had, right? So it's always good to see, you know , what the FEC is thinking from a comment letter standpoint to get a little bit more clarity for better or worse, right? So in the past, you know, just like any other intangible asset, you're gonna take a look and see what are my impairment indicators and what are , what are the events that may cause us to believe that we had an impairment and it varied company to company and what that process was, right? It was really more akin to an accounting policy election at the time. And so some, you know , more concrete guidance or was , uh, was , was put out, right? So a lot of companies typically would look at, hey, you know, what, what did we buy and sell at during a particular period for that to be kind of your impairment indicator? Honestly, when we were going through that with a handful of companies, that kind of made it easier because you were able to just kind of highlight all your transactions and let's look at them in and and see during that period, what does that look like? What kind of came out of the comment letter standpoint was more so I think they ended up saying, you know, it's gotta be daily, where in the past you can kind of take a look, maybe it's weekly, maybe we were doing monthly, maybe we were doing quarterly, really depended on kind of what, what the company wanted to do and how much time they were looking to spend on it. From that comment letter, it was very clear that, hey, it needs to be daily, which, you know, for a lot of companies at the time is , is , is a very big lift. And it was not only daily and the prices you were transacting on, it was, hey, it's any or your principal market, if it dipped at any point below your cost basis , that is now an indication of impairment. Which honestly, that , you know, wasn't necessarily the , the way that a lot of us would agree with , especially in a market where, where flash, flash crash is in the nomenclature. So I think, you know, again, gave us some guidance , uh, you know, I think it was more so a effort with your auditor as well, what , what are we comfortable with right now ? Are we making the right effort here? Are we having the right accounting policy with that in mind of what's kind of been the comment letter before? So I mean , again, it , it ends up being a little bit more of a policy election on , on some pieces, but, you know , there's definitely a difference between looking at something on an annual basis and just that what you're transacting at versus daily. And Hey, my principal market , Coinbase and price of x, y , z dip to , you know , a penny today. Now I gotta impair everything and , and kind of stuck there until I sell it. Which that's kind of the other piece of it is a lot of these companies, especially now when you're seeing some of the non crypto related companies that are buying it as a treasury asset, their plan is to buy and hold, right? So if we were still sitting in an impairment, impairment guidance standpoint, you know, that's not gonna look great and kind of defeat the purpose for them holding that treasury asset for their shareholders, right? It doesn't translate that value to the balance sheet, doesn't translate that value to their shareholders either. 00:13:50.455 --> 00:14:35.764 Agreed. Agreed. And I , I think that's where this standard helped paint the better picture for companies in their financials and try to make almost like a , a business case for where you're holding this more as an asset. Because a lot of companies that we were working with before were using it for that purpose. It just wasn't indicative on the financials. So we , we talked about what's in scope, what's outta scope, but when you're thinking of adopting this new standard, what does that look like from an

accounting standpoint? So can you talk us through, almost like I wanna go to journal entry one oh ones and t accounts, but right . What would that, how would that be reflective on data of adoption and when a public versus private company , should they be adopting this standard, right? Because I had one company that tried to public company that tried to adopt like Q2 or Q3. So can you , can you tell us a little bit about that? 00:14:36.394 --> 00:18:04.605 Yeah, of course. Yeah. So I would say from a adoption standpoint, right? So first you're gonna see when, when do I wanna adopt, right? So for , for public companies, I believe it was anytime after or the , you know, years ending after, or starting after December 3rd or 12th , uh, 15th , 2024 , right? So typically it would be around 1, 1 25 would be your date of adoption. But again, able to to early, early adopt as well. So, and , and private companies, it's kind of a , you know , whenever you want to kind of get in there similarly. So really what you're doing first is what , what is my date of adoption, right ? So an example we have of a client right now is they're going through and contemplating a first time audit and 2024 is gonna be presented as kind of the most recent financial statements . Well, if they're doing comparative periods, then you're also gonna have 2023 . So now the question becomes, do I adopt as a 1 1 24 and maybe have a mismatch and kind of how it's presented on the , the two financials that are comparative to my financials for the filing? Or do I go all the way back to , you know , beginning of 2023 and kind of start looking at it from there. In this particular case, they wanted to go back. So we'll take a look first at what are the holdings as of 12 31 22 , and we'll start there and kind of go through that scoping exercise , right ? What's in scope, what's at scope , and kind of go through that process. And then for anything that's in scope, we need to see what's remaining at 12 31 22 in this particular case and how much impairment has been recorded for those aspects . And step one is to essentially reverse that impairment for all of them . So they're back to cost and running that through opening retain, mm-hmm . Then what we're gonna do is go through that principle market assessment, right? So now all those assets that are in scope, they're now back to cost . As I'm looking at it on 1 1 23 , what's my fair value, right? So as I go through each of those principle markets, hopefully you're writing all of these up and you're gonna now reflect it at the higher fair value as of 1 1 23 . And that kind of gets you to kind of your initial adoption. And then from there you're essentially treating it like any mark to market asset on a go forward basis as you kind of flow through the principle markets going forward . So you're gonna see if I do a quarterly filing, what's my 3 31 fair value? What's my 3 31 quantity of each of those in inscope assets? You'll also take a look and , and

typically have to reassess principle market to make sure that still makes sense. Hopefully the exchange isn't defunct, hopefully nothing else has come through your kind of business as usual there. And then you'll market to market Again, that's all gonna run through unrealized, which really wasn't a thing when you had the impairment side of things. And then as you continue, that's really kind of the , the process right mark to market, see if they're all still in scope, what's my principle market? Move on from there. And then finally from there, that's on the accounting side. Not to jump ahead, I'm sure you're gonna ask this question later, but while we're already talking about it, you have the disclosure updates , right? So now you're gonna take a look and see, all right , what are my assets? I wanna see the listening of assets, my quantity, my cost basis, and then my fair value. So that'll be kind of more of your inventory of , of assets. And then you're also gonna take a look at and wanna document and disclose what does that look like from a roll forward standpoint, right? How did I, and it's not just I had acquisitions and disposals or inflows and outflows , it's , you know , what kinds of inflows and outflows did I have ? Was it mining activity ? Was it staking , was it through vehicles ? Was , you know , was I selling merchandise and , and collecting , you know , crypto on it? Kind of getting to that level of granularity to understand from a dollar value standpoint and depending on, you know , how granular you wanna be , you could do it at the asset level, you could do it in , in , in , uh, in aggregate . Um , but essentially going through that roll forward process that you'll see for a lot more of those intangible assets as well. 00:18:06.065 --> 00:18:28.055 What , what have you seen for all of that work with the adoption of this new standard? What have you seen as some of the pain points for companies adopting this? Has it been getting that data from your principal market? Um, has it been going back to the original cost base and reverting some of that impairment piece? What have you seen as some of the challenges that maybe some other companies need to know to get out in front of? 00:18:29.345 --> 00:19:53.714 Yeah, it's definitely been a , a wide variety. I'd say even going back to the beginning, I mean, unless they're using a sub-ledger that supports all of their assets, it's really going back to the blockchain. I mean , there's some blockchain explorers that just don't have that export feature or it's not at that level that's, you know , very easy to pull it out of , especially in companies that have high volume. So step one is really just kind of getting all that blockchain data and putting it in some sort of consumable form, whether it's going through a , a subledger or you have some sort of Excel analysis that you're going through. But from the adoption standpoint, I mean , you hit it right on the head , right? It's kind of making sure that we're understanding what is that remaining cost basis and what is that remaining impairment on that remaining cost basis asset , right? So that's kind of the , I might be able to see all of the 2022 impairment for the period. Some of that might have gotten sold , right? So if I see , you know , 10 million of impairment in a given year, I'm not looking at that to reverse it . I need to understand what's left that needs to be reversed for the assets that are sitting on their books as of the end of the year. So that's always a pain point there going through. I'd say the principal market assessment, just from a first time standpoint is always a challenge just because it's a different process going through and pulling that volume to make sure you have that comparative nature of that information to make sure that you're going through that for your auditors or for your investors or whomever tends to be a challenge as well. And then from there, once you kind of have those two pieces, it's a little bit rinse and repeat, but you know, I'd say for , for companies that may not necessarily track it at that granular level, getting it to that point from the first time through is always a challenge. 00:19:54.345 --> 00:20:41.555 Yeah, and I think it's important, I'm sure you've advised clients with a similar approach. I'd be curious if you have something different about the setting up the, the account structure for this new adoption, right? It's important to main maintain your cost basis per asset for tax purposes. You wanna make sure that you're bifurcating out the two for accounting or audit as well as for tax, so your turns are accurate. And then when you have a sale, you know, which tranche to properly allocate it to. But what I've told a couple companies is when you're, you're booking this unrealized markup, almost create a separate asset and corresponding p and l account just for the credit where you're flushing through those quarterly or annual mark to market adjustments. So you have a , a core asset at cost and then you have another account which with your, your mark to market adjustment, just so you can always tell the , the difference between the two. 00:20:42.493 --> 00:21:33.365 Yeah, I , I mean I would say for the most part, as as granular as you get, probably the , is about probably best understanding that if it's tough to maybe track and , and set up all of those accounts, really at the end of the day, my, the way I we always look at it is if, if your , your auditor comes knocking and wants that support, how easy is to pull together, right? You know , you wanna make sure, you know , if I have, you know, Bitcoin and e and , and light coin much easier to see that and kind of pull that out because I've already been booking it on an individual , individual basis versus having that extra exercise of kind of going through and saying, all right , well now I gotta come through all of this and , and kind of pull it out and kind of have that

reconciliation on the back end . So it , it really just depends on what the lift you're looking to have. I mean, if you're going through audit , more granular is , I'm sure you'll tell your clients more granular and specific is always better. But I mean, we've seen it both ways, but we always kind of, you know , recommend, you know , get more granular. It's gonna make it easier in the long run. 00:21:33.634 --> 00:22:33.845 Yeah. Okay. So I think, I think we've beat up this new standard pretty well today. There's a lot to unpack, but I think you've done a great job explaining this. The last question I have is in terms of disclosures, this is probably just me being a financial statement nerd over here. When you think of these with the adoption of this new standard as a quote unquote investment now, right? I know it's still under the intangible guidelines, you have to add a, a fair value hierarchy chart to the footnotes. And the reason I ask is because you're gonna see a lot of these assets that have some thinly traded volumes and then some that are widely traded. So you have bitcoin, ether, ripple called the , the blue chips, right, if you will. And then some that maybe are more esoteric that are, don't have as much of an established market. Where would those fall in line between like the level one, two and three hierarchy chart? 'cause you went through the analysis of the new footnote disclosures, right? What you need to include, is this also in that space? Does that also require disclosure? 00:22:34.674 --> 00:23:27.085 Yeah, yeah. We, we've definitely started seeing companies have a line now in that fair value table of, of digital assets of stable coins and , and kind of, you know , footnoting it a little bit in there as well. Right? So, so to your point, it really is just kind of going through that level one, level two, level three and seeing what that, what are you relying on, right? Are you able to see it on a exchange that has, you know , decent volume to kind of argue that level one, level two? Or is it something that isn't quite, you know, readily , uh, exchangeable yet maybe you got in on a presale , um, maybe it's an ICO that probably would sent more in that level three side of things, right? And then as you kind of go through that and have the level three side , make sure you have that roll forward , you know , your ins and outs on the changes for , for that piece of it , but piece hundred percent you nailed it on the head, that's definitely gonna be a part of that new, that FB table. You know, even though it's not necessarily financial instruments, it's got that fair value side of it. Um , and we see, you know , a separate line on that for a lot of our clients for , for digital assets. 00:23:27.825 --> 00:23:52.483 Awesome, awesome. So , uh, my , my final question for you . There's a lot happening so far the first quarter of this year, the pro crypto administration that's now in the White House. What are you most excited for in 2025?

Some of the changes that have come out already? Um, I think we're seeing a lot of movement. I think there's a, a lot of momentum in this space, but I'm curious, what are, what are you most excited for that has either already come out or could potentially be in the pipeline for the remaining nine months? 00:23:53.565 --> 00:24:46.454 Yeah, I mean, I think it's definitely great to see an administration that's a little bit more pro crypto than we see in the past. I think over the past couple of years you've seen companies leave the US because of the stringency of the regulation and kind of just not wanting to have to go through the hoops that were there. I feel like we're starting to hear conversations about people coming back now, right? So I , I'm definitely interested and excited to see that, call it domestication of , of some of these companies. And hopefully we'll see some, you know , foreign private issuers kind of make into play to come into the US as well. And I'll tell you , I've probably heard IPO from crypto companies more in the past couple of months, or sorry, that past couple of weeks than I have in the past 18 months, right? So I , I can tell you right now we're working on a couple of projects that are heading in that direction that are looking a little further out, which is great to see that the , the patients and the maturity there. But yeah, no , from a , from a company that loves to help companies go, you know, through the IPO process, you know, that's definitely what we're most excited about is seeing a lot more of that domestication. 00:24:47.335 --> 00:25:20.174 Yep . Yeah, I , I completely agree and I'd be curious to see if we're gonna see a big movement, particularly with what's happened on the , the meme coins over the last couple months and a lot of that being , uh, minting and driven in the United States. If we're gonna see token issuers come to the United States, because I think for a while now we saw a lot of the offshore foundation set up the labs here in the United States and that arm, and I mean, going back five, six years, a lot of the , uh, entity set up in like BVI or, or somewhere offshore to do the ICO proceeds. So I'm curious if a lot of that comes, comes back here now or not. So a lot of things to be excited for. 00:25:21.255 --> 00:25:22.775 Absolutely. No , it's exciting times for sure. 00:25:23.404 --> 00:25:33.575 Awesome, Mike, I appreciate you joining us. Uh, that wraps up today's episode. Where can listeners go to learn more about you, your LinkedIn, where , where can they find Century ? Yep . 00:25:33.724 --> 00:25:53.493 Yeah, absolutely. So yeah, my on , on LinkedIn , uh, we have century consulting.com as well, and you can kind of find our , our FinTech digital asset pages. Yeah . Also have a capital conference coming up in about a month , uh, based on the time that this is being recorded. Um , so looking to , you know , get people in front of some investors as well. Um, you know , merging tech life sciences. We'll definitely have a blockchain track as well. 00:25:54.464 --> 00:25:57.154 Awesome. I appreciate you joining us, Mike. Thank you. 00:25:57.615 --> 00:25:58.515 Of course. Thank you, mark. 00:25:59.694 --> 00:26:08.035 All views expressed in this podcast by Mark Eckley or his guests are solely their opinions and do not reflect the opinion of wisdom . This podcast is for informational purposes only .