FASB Settles on Fair Value Accounting to Measure Crypto Assets

The Financial Accounting Standards Board said Wednesday that companies should use fair value accounting to measure bitcoin and other crypto assets, moving closer to a standard that could dispel uncertainty about the value of such holdings. .

There are currently no specific accounting or disclosure rules for cryptocurrency assets, so companies classify them as indefinite-lived intangible assets similar to intellectual property such as trademarks. Companies must review the value of these assets at least once a year and depreciate it if it falls below the purchase price. If the value increases, companies can only realize a gain when they sell the asset, not if they continue to hold it.

Businesses and accountants want the FASB to adopt fair value accounting instead, which would allow them to immediately recognize losses and gains and treat digital assets as financial assets.

The FASB said Wednesday that fair value accounting best captures the economics of crypto assets and determined that the method would be a requirement rather than an option for businesses. “We’ve heard from investors that they want transparency through disclosure, and the only way to achieve that is through fair value,” said board member Gary Buesser.

The price of bitcoin, the world’s largest cryptocurrency by market capitalization, fell from a high of nearly $68,000 in November to around $19,100 this month, according to data provider FactSet.

“The only way to get real information about owning bitcoin or Ethereum is fair value,” Buesser said. Ethereum is the second largest cryptocurrency by market cap.

Companies and investors have been asking the FASB for years for rules on how to account for and disclose crypto assets. In December, the accounting standard-setter began looking for an opportunity to establish new regulations, and in May it added a crypto project to its technical program that defines its rule-making priorities.

The current approach to accounting for digital assets forces companies to prepare financial statements in a way that does not accurately reflect the results of their operations or their financial position, according to MicroStrategy Inc.

Chairman and CEO Phong Le.

The Tysons Corner, Va.-based software company had about $1.99 billion in bitcoins as of June 30, up from about $2.89 billion at the end of March, according to regulatory filings. MicroStrategy acquired about 301 more bitcoins between August and September, bringing the current value of its digital assets to about $2.5 billion.

“We expect the disconnect between the book value reported on our balance sheet and the fair market value of our bitcoin holdings to increase significantly over time,” Le said in a comment letter to the FASB last year. when he was chief financial officer of MicroStrategy. officer.

This is due to bitcoin’s volatile nature and MicroStrategy’s inability to adapt to future increases in value, he said, adding that digital assets should be valued at fair value. The company declined to comment on the FASB’s decision.

MicroStrategy, Block Payment Company Inc.

and car manufacturer Tesla Inc.

are among the few publicly traded companies that hold significant bitcoin holdings.

New accounting rules in this area could change that or ease corporate reluctance, said Deniz Appelbaum, assistant professor of accounting and finance at Montclair State University. “Without these standards for accounting and valuing crypto assets, companies are reluctant to hold them,” she said.

In August, the FASB detailed criteria for the assets it will include in its cryptocurrency project, leaving out non-fungible tokens and some stablecoins. The council will then consider what should be included in asset disclosures and how companies should inform investors.

The two topics will likely be discussed by the end of the year, according to a FASB spokesperson, and the board will then vote on whether to release a proposal. He declined to comment on when that might happen.

Write to Jennifer Williams-Alvarez at [email protected]

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