US Accounting Standard-Setters Propose Crypto Accounting Rules to Reflect Market Volatility

  • Sergey Maga
  • 11:00 Mar 26, 2023
US Accounting Standard-Setters Propose Crypto Accounting Rules to Reflect Market Volatility

The Financial Accounting Standards Board (FASB) has put forth a proposal to establish long-awaited accounting rules for companies that hold cryptocurrencies. Under the new plan, companies would be required to report their crypto holdings at fair value, providing a more accurate reflection of assets like Bitcoin and Ether.

The proposed changes would impact net income reporting, with increases and decreases in crypto value being included. This marks a departure from current practices that only allow companies to record decreases in their crypto holdings' value. Mark Eckerle, a senior manager at WithumSmith+Brown PC, believes that these changes will simplify the process and provide a better indicator of a company’s performance.

The FASB proposal is intentionally narrow, excluding tokens created by a company for use on its own platform, ensuring that companies cannot artificially inflate their balance sheets by minting tokens. The potential new rules would apply to assets created or residing on distributed ledgers based on blockchain technology and secured through cryptography, as long as they meet the definition of an intangible asset under US accounting rules.

To be included, assets must be fungible, meaning they can be interchanged with other assets of the same type. Non-fungible tokens (NFTs), stablecoins, and wrapped tokens are excluded from the proposal.

At present, there are no specific rules in the US accounting rulebook for companies like MicroStrategy Inc., Tesla Inc., and Coinbase Global Inc. to recognize and measure the digital currencies they hold. Companies currently follow an American Institute of CPAs practice guide that treats most cryptocurrencies as intangible assets.

Under the proposed changes, companies would have to make a separate entry for their crypto assets in their balance sheets, providing a clearer picture of their investments in cryptocurrencies. Additional disclosures about significant holdings, restrictions, and changes in crypto holdings would also be required.

Both public and private companies would be subject to the proposed requirements, with comments due by June 6.

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