FASB (Finally) Backs Fair-Value Accounting for Cryptocurrency Assets
Cryptocurrency enthusiasts don’t exactly seem like rule-following types. In fact, defying convention likely makes up much of crypto’s appeal for many digital-token owners. Pesky things like accounting standards probably don’t even show up on their radar screens.
On the other hand, accounting for crypto assets is kind of a big deal to publicly traded companies – seeing as they’re regulated by the federal government. Certainty on that issue has been in short supply, but the Financial Accounting Standards Board inched closer last week to arriving at a permanent standard by endorsing fair-value accounting for crypto assets.
As such, bitcoin and other digital tokens would get treated as financial assets under accounting best practices, allowing companies to recognize their appreciation and declines in value in real time. The move will probably please most companies and the accountants who do their books, as the board noted that “an overwhelming majority of stakeholders favored fair-value measurement.”
Absent any hard-and-fast rules for crypto accounting, corporations have been forced to use the standard for indefinite-lived intangible assets in their financial reporting. That means effectively treating their crypto assets like intellectual property and assessing their value annually. Therefore, if the value falls below the price at which the assets were bought, the companies incur a write-down on their financial statements. However, they can’t record gains until they sell their holdings.
To be fair, even though fair-value accounting will make some companies’ balance sheets look healthier, the truth is that it offers transparency benefits that make financial statements more useful to investors, banks, regulators and the public. Cryptocurrencies have shown themselves to be nothing if not volatile over time. It doesn’t present an accurate picture of a company’s financial position if such investments can clearly appreciate in market value but only carry downside on the books. In the words of the FASB, “reflecting only the decreases in the value of crypto assets does not faithfully represent the underlying economics of those assets.”
So, with that accounting issue out of the way, will more companies start investing in crypto? As of now, a small handful of companies have crypto in their holdings. Not surprisingly, the group includes automaker Tesla Inc., run by online performance artist Elon Musk. Meanwhile, one of the largest corporate crypto owners is a software company, MicroStrategy Inc., which owns a portfolio of digital tokens with an estimated value of approximately $2.5 billion.
Once companies can capture crypto valuation gains on their books, it stands to reason that more of them would want to add digital assets to their portfolios. Of course, a more popular accounting standard probably won’t do much to bolster crypto’s appeal with the nonconformists who helped turn crypto into a financial phenomenon in the first place.
Risk Disclosures Reflect Concerns About Geopolitical Instability
Rounding the corner to 2024, corporate leaders and analysts are warning that geopolitical instability – driven primarily by ongoing conflicts, political uncertainties, and upcomin...
SEC Uses ‘Swiss Army’ Statute in $25 Million Fine for Violations on Stock Buybacks
Companies that alter their trading plans outside guidelines authorized by their boards should beware of the risk of heightened regulatory scrutiny from the Securities and Exchange...