New US accounting standard for crypto to be finalized by year-end

The Financial Accounting Standards Board on Wednesday unanimously approved new rules for valuing crypto assets in company financial statements.

Members of the board approved a standard mandating that companies use fair value accounting for bitcoin and some other crypto assets. 

This approach aims to reflect the crypto asset’s current market value, even if it has recently fluctuated. Some companies wanted exactly this to happen.

Both public and private companies will be required to separately disclose their crypto assets in their financial reports, whether they are quarterly or annual. 

These assets can no longer be grouped with intangible assets like patents and trademarks.

Additionally, businesses must account for gains and losses on their crypto assets within their net income.

The FASB aims to improve financial reporting standards and offers guidelines for both public and private companies when crafting their financial statements.

It has sought to create new accounting rules for crypto assets because the existing treatment, which categorizes them as indefinite-lived intangible assets like trademarks, does not provide investors with useful information for making decisions.

“I think in my brief term here, there hasn’t been an issue that has excited such passion from people,” FASB Chairman Richard Jones said during the meeting. 

“I think we heard overwhelmingly from investors that allocate capital based on the use of financial statements that this will provide them better information to make their decisions, and so I’m fully supportive of it,” he said.

The board initiated a feedback process in May to consider potential revisions to the reporting methods for companies’ cryptocurrency holdings. 

This came as corporations like Tesla and MicroStrategy have traditionally disclosed the value of their crypto assets annually, marking them down as impairment charges whenever their value dipped below the acquisition cost.

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Following an assessment of the feedback, the board greenlighted the creation of a finalized version of this new accounting standard. 

The final version of the standard is anticipated to receive official approval by the close of this year.

According to industry observers, a crypto-specific accounting standard could ease companies’ fears of impairment charges from market volatility.

Berenberg analyst Mark Palmer said on Wednesday that the updated rules should assist MicroStrategy and others holding digital assets in dispelling the negative perception generated by impairment losses under the existing FASB guidelines.

Palmer pointed out that since adopting its bitcoin strategy in August 2020, MicroStrategy has reported $2.2 billion in impairment losses. He added that a major loss of $917.8 million in the second quarter of 2022 skewed public perception, suggesting the company’s value has been negatively impacted.

Implementation of the new standard is set to take effect for annual reports beginning in 2025, although earlier adoption is allowed.

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