Proposed accounting rules could benefit companies holding crypto

Quick Take

  • The FASB has voted for a new set of accounting rules for crypto that proponents say would more accurately reflect the current value of holdings.
  • There is still a public comment period ahead.
  • The accounting standards-setter is also taking a wider look at its guidance for digital asset reporting. 

The Financial Accounting Services Board (FASB) unanimously voted to direct firms to use fair-value accounting for the crypto on their balance sheets – a change that could favorably alter the picture of a company's bottom line.

Previously, firms were directed to report the lowest price since purchase for crypto, accounting for the assets with impairment charges. Those charges show the decline of the asset by reflecting any fall in value.

With crypto's significant volatility, this led firms to take a big hit on their balance sheet that may not have reflected the current state of its holdings. Now, firms could be directed to record crypto at fair value, which standardizes reporting of digital assets with other financial assets. Those rules allow firms to recognize gains and losses as they occur, rather than when they sell the asset.

The vote represents only the first step towards amending the rules. The FASB still will have to circulate a draft of the rules and solicit comments. It will likely be months before any directive is firmed up and takes effect.

Crypto tax firm Bitwave said the unanimous vote marks a step towards an easier reporting process for crypto companies, and could usher in wider adoption.

“Impairment meant that public companies looking to get into digital assets had a big hurdle in their public reporting,” Bitwave CEO Pat White said.

Indeed, MicroStrategy, which has extensive bitcoin holdings, has long complained of the previous accounting standards. The company sent a comment letter to the FASB in September 2021 laying out the challenges of accounting with a crypto-heavy balance sheet. It pointed out that accounting with impairment charges leads to reports of assets "that diverge significantly from their fair market value."

MicroStrategy faced pushback from the Securities and Exchange Commission (SEC) at the start of this year when the agency scolded the firm for attempting to adjust for bitcoin impairment charges on its balance sheet disclosures. 

Lawmakers have taken up the issue in the past as well. In May of 2021, seven members of Congress sent a letter to the FASB asking the accounting body to establish clearer guidance for digital assets. 

The accounting standards-setting body has been in the process of overhauling its directives for crypto assets this year, and further changes are still up for discussion.

“If anything is clear to us now, it’s that more change is coming. There has never been a time when it’s more important to have flexibility in your crypto accounting platform,” White said.


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