The Financial Accounting Standards Board (FASB) announced Wednesday revisions to the accounting and reporting guidelines on companies’ cryptocurrency holdings.
Effective starting in December, the new rules aim to provide investors with more transparency concerning digital assets.
The revisions aim to assess crypto assets at their fair value, encompassing both rises and falls. According to the FASB, this adjustment is expected to offer a more precise representation of an organization’s financial status.
“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,” said FASB chairman Richard Jones.
Under the current rules, companies must record their cryptocurrency holdings at the price they first bought them for and record any loss if the value goes below that.
However, they cannot adjust the value upwards if prices increase. This approach has faced criticism for only representing one aspect of asset fluctuations.
Under the new guidelines, both profits and losses will be reflected in the income statement.
The new rules call for more disclosure requirements, encompassing specifics regarding the cost basis of significant cryptocurrency holdings, limitations on asset disposition and a comprehensive reconciliation of crypto asset transactions from the start to the conclusion of the reporting period.
The new rules cover cryptocurrencies such as Bitcoin and Ethereum, along with stablecoins tied to fiat currencies.
Following some deliberation, the board excluded non-fungible tokens (NFTs) and wrapped tokens representing claims on other crypto assets from these regulations. Board member Christine Botosan explained that they would still be accounted for based on costless impairment.
“I know there’ll be some that are disappointed that we haven’t expanded the scope to address wrapped tokens and NFTs and whatnot,” FASB member Susan Cosper said. “But I think that intentionally keeping this project narrow has really allowed us to get this information in the hands of investors sooner.”
The new rules will be applicable to both public and private companies, with an effective date for fiscal years commencing after December 15, 2024. Companies are allowed to adopt them earlier if they wish to do so.
The revisions were made in response to growing demands for transparency from investors and other interested parties, particularly in light of companies like Tesla, MicroStrategy and Block (formerly Square) amassing substantial Bitcoin reserves.
MicroStrategy co-founder and executive chairman Michael Saylor praised the move, saying introducing fair value accounting to Bitcoin was a substantial step. He remarked that this update eliminates a significant obstacle for companies considering the adoption of Bitcoin as a treasury asset.
Similarly, financial analyst Stack Macro noted that the rule change now allows cash-rich companies to accumulate Bitcoin, providing a means to hedge their bond portfolios against currency devaluation.
The vote held on Wednesday marked the conclusion of a standard-setting process that began in July 2022 when the FASB initially issued its proposal. The final rules were shaped by feedback from more than 80 comment letters submitted during a public comment period.
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