Standards Setter Floats New Rule on Crypto Accounting

Financial Accounting Standards Board proposes that U.S. companies use fair-value accounting to measure certain cryptocurrency assets

The Financial Accounting Standards Board voted to propose a new rule on cryptocurrency accounting and disclosure, creating new guidance for companies holding these assets and providing more details to investors.

The U.S. has no specific accounting or disclosure rules for crypto assets. ​​The FASB, which sets accounting standards for U.S. public and private companies, on Wednesday said it would issue a proposal that would require businesses to use fair-value accounting for bitcoin and other crypto assets.

Companies and accountants had long pushed for this move, as it would allow them to recognize losses and gains immediately, and treat digital assets as financial assets instead of as indefinite-lived intangible assets.

Businesses currently classify crypto assets as indefinite-lived intangible assets, similar to intellectual property such as trademarks. Companies must review the value of such assets at least once a year and write it down if it drops below the purchase price. If the value rises, companies can record a gain only when they sell the asset, not if they continue holding it.

The proposal would also require public and private companies’ financial statements to break out their crypto assets, separating them from intangible assets such as patents and trademarks. Companies would have to include gains and losses on crypto assets in their net income.

The FASB added the crypto project to its agenda in May. “This is pretty quick for us and this is a pretty big change,” said FASB board member Christine Botosan. “I’m really pleased with the transparency that this proposal will provide to investors.” 

The standards setter on Wednesday revised the scope of the proposal to clarify that it shouldn’t apply to creators or issuers of crypto tokens or related parties. The proposal would also exclude so-called wrapped tokens, which allow crypto assets from one blockchain to be represented and used on a different blockchain. ​​The FASB in August omitted nonfungible tokens and certain stablecoins in detailing its criteria for the assets included in the project.

The proposed rule would affect a smaller set of companies than some other recent moves by the FASB, as few businesses outside the crypto sector hold crypto, Chairman Rich Jones has said.  

Automaker Tesla Inc., payment company Block Inc. and software provider MicroStrategy Inc. are among the few public companies with crypto holdings on their balance sheets. Tesla and Block didn’t respond to requests for comment. 

MicroStrategy is encouraged by the FASB’s recent actions on accounting for digital assets, Chief Financial Officer Andrew Kang said. “We continue to see these as positive steps to improve investor transparency and enhance the regulated financial reporting of digital assets,” Mr. Kang said.

The FASB aims to issue a formal proposal by late March and ask the public for feedback over a 75-day period, a spokeswoman said. The board could issue a final rule as early as the fourth quarter of this year, the spokeswoman said. 

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