The Financial Accounting Standards Board (FASB) has recently approved new rules for accounting for the fair value of companies’ cryptocurrency holdings. These rules, which will go into effect in 2025, have been unanimously approved by the FASB, the United States organization that sets accounting and reporting standards for organizations that follow U.S. Generally Accepted Accounting Principles (GAAP).
The FASB had previously issued a call for comments on proposed changes to the FASB Accounting Standards Codification in March. After receiving feedback and discussing the proposal, the new rules were put to a vote on September 6, resulting in unanimous approval.
Fair value refers to the estimated price of an asset that takes into account its current market value and other determining factors. The FASB had made a “tentative” decision on fair value accounting for crypto assets in October 2022. This decision has now been formalized with the approval of the new rules.
One significant change brought about by the new accounting method is that companies will no longer be required to keep impairment losses from crypto on their balance sheets even after the digital asset regains its value. Previously, companies were obligated to record these losses, which occur when an asset suddenly loses value, creating a discrepancy between the actual value of the asset and its recorded value on the balance sheet.
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The implementation of fair-value accounting for crypto will introduce more volatility in the earnings of companies with large crypto holdings. However, it will also enable them to record financial recoveries resulting from increasing crypto prices. It is worth noting that companies can choose to adopt fair-value accounting for their crypto immediately if they wish to do so.
Christine Botosan, a member of the FASB, remarked that the new rules allow both the reduction of costs and the improvement of decision-making through the provision of more useful information. The unanimous approval of the new rules reflects the board’s recognition of these advantages.
The impact of the new rules will not be limited to crypto-native companies like Coinbase. Investment companies and companies like MicroStrategy and Tesla, which hold substantial amounts of crypto, will also be affected. MicroStrategy chairman Michael Saylor expressed his support for the rule change, stating that it eliminates a significant obstacle to corporate adoption of Bitcoin as a treasury asset.
To accommodate the changes, crypto will become a separate line item under “intangible assets” in financial accounts. This adjustment reflects the increasing recognition of cryptocurrencies as valuable assets that need to be properly accounted for.
Overall, the approval of the new rules by the FASB represents an important development in the accounting standards for cryptocurrencies. It provides clarity and guidance for companies that hold crypto assets and will contribute to broader adoption and acceptance of cryptocurrencies in the corporate world.
