Accounting Board Rules Will Make Crypto Reporting Simpler for Firms

A U.S. accounting authority has said firms wanting to use cryptocurrencies should employ fair-value accounting when keeping stock of assets on their books.

From now on, companies are required to use fair-value accounting when taking stock of the crypto assets in their books, according to the U.S. Financial Accounting Standards Board (FASB).

Firms holding digital assets, and their bookkeepers, had long hoped the FASB would adopt the fair-value accounting standard for cryptocurrencies.

Fair-value accounting allows immediate recognition of gains or losses

Prior to this decision, businesses lacked a specific way to disclose their crypto assets. Consequently, many classified them as indefinite-lived intangible assets.

However, this required these firms to annually report on the assets if its value dropped beneath the purchase price, but they could only record a gain upon selling an asset.

Now, with the fair-value accounting standard in place, crypto-holding firms are able to treat them as financial assets, as well as immediately recognize any gains or losses.

In its announcement, the FASB said this method most accurately reflected the economics of crypto assets.

After receiving years of requests for clarification from crypto-holding companies and investors, the FASB said it would look into establishing new regulations for digital assets in Dec.

Then, in May this year, the accounting standard-setter officially listed it as a priority by including a crypto project in its technical agenda, which neglected to include non-fungible tokens and stablecoins.

Account Board Touched Base with the Fed

Last month, during a joint discussion with the International Accounting Standards Board (IASB), the FASB was queried over whether it had made contact with the Federal Reserve regarding its crypto project. 

As with any other stakeholder, FASB Chair Richard Jones said that the FASB had solicited the SEC’s feedback on their crypto project.

He elaborated, explaining that the accounting standard-setter had reached out to its regular contacts within the commission, the board’s primary regulator, including the office of its chief accountant. 

Business should now find it easier to hold crypto

While the subject of financial accounting is notoriously dry, these standards have significant implications on the books of companies holding digital assets. For one, companies will be more likely to include cryptocurrencies on their books, now that a reasonable standard has been set, according to one expert.

Meanwhile, MicroStrategy Inc. chief executive Phong Le explained that financial statements in which cryptocurrencies are declared as indefinite-lived intangible assets do not accurately reflect the financial condition or operations of an enterprise.

Earlier this year, the share prices of MicroStrategy fell some 15% after a ruling made by the Securities and Exchange Commission regarding the company’s accounting principles.

The SEC said that MicroStrategy had used non-GAAP (Generally Accepted Accounting Principles) in its third quarter financial report for 2021.