The FASB has recommended that crypto be recorded at fair market value on corporate balance sheets, removing possibly significant impairments but adding to volatility.
The Financial Accounting Standards Board (FASB) has unanimously approved rules for accounting for the fair value of companies’ cryptocurrency holdings, according to media reports. The rules will go into effect in 2025.
The FASB is the United States organization that sets accounting and reporting standards for organizations that follow U.S. Generally Accepted Accounting Principles (GAAP). It issued a call for comments on proposed changes to the FASB Accounting Standards Codification in March.
The proposal was discussed and put to a vote on Sept. 6.
Fair value is the estimated price of an asset that takes into account current market value and other decisive elements. The FASB had made a “tentative” decision on fair value accounting for crypto assets in October 2022.
FASB is moving to fair value reporting for Bitcoin holdings
Should @Swan host a livestream today to explain the implications?
— Cory Klippsten | Swan.com #Bitcoin (@coryklippsten) September 6, 2023
Previous practice required companies to keep impairment losses from crypto, caused when an asset suddenly loses value, on their balance sheets even after the digital asset regained its value.
The new accounting method will increase volatility in the earnings of companies with large crypto holdings but allow them to record financial recoveries from increasing crypto prices. Companies can begin using fair-value accounting for their crypto immediately if they wish to. FASB member Christine Botosan said:
“It’s not very often that we can both take cost out of the system and improve the decision usefulness of information, and it makes it a really easy vote to do both of those.”
Besides crypto-native companies like Coinbase, the rule change will affect investment companies and companies like MicroStrategy and Tesla that hold large amounts of crypto. MicroStrategy chairman Michael Saylor wrote on X:
“Fair value accounting is coming to #Bitcoin. This upgrade to FASB accounting rules eliminates a major impediment to corporate adoption of $BTC as a treasury asset.”
To accommodate the changes, crypto will become a line item under “intangible assets” in financial accounts.