Crypto Value Swings to Hit Company Revenue Under Chart of Accounts

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Companies like MicroStrategy Inc., Tesla Inc., and Block Inc. that hide bitcoin in company vaults should highlight their holdings in separate balance sheet items and record fluctuations in value as hits or increases in value. net profit, as part of a plan taking shape from the US accounting authorities.

The goal is to give readers of financial statements maximum transparency about how the market value of cryptocurrencies affects company results, members of the Financial Accounting Standards Board unanimously said on Wednesday.

A handful of people have expressed some concerns about income statement volatility, but that volatility reflects real exposure to economic volatility, said FASB member Christine Botosan. It is therefore very important that this goes through the income statement.

The votes put the FASB on track to publish a proposal for public comment by mid-2023. The proposal would apply to public and private companies, the board said.

In October, FASB members took a key step in shaping new accounting rules for digital assets by voting to require companies to measure cryptocurrencies at fair value, a measurement technique that captures the value the most current of an asset or a liability. The board, however, had not voted on where in the financial statements the companies would record the fluctuating value of crypto, whether in net income or other comprehensive income.

Under the plan so far, companies like enterprise software maker MicroStrategy that bet big on bitcoin could see their profits fluctuate depending on the cryptocurrency’s market value.

On Wednesday, the FASB also presented specific information that companies should report in their footnotes on their crypto holdings at the end of each period: the name of the crypto assets, their cost basis, their fair value, the quantity of each significant crypto asset that they hold, and a description of how they determined the value of the crypto.

MicroStrategy, which has bet it all on buying bitcoin in 2021 as its primary business strategy, voluntarily includes a slew of disclosures about its holdings in footnotes to its financial statements. However, other companies, such as electric vehicle maker Tesla, offer few details about their holdings, opening questions about financial reporting when the company sold 75% of its crypto in July.

The disclosure disparity stems from the fact that no US accounting rule specifies how companies should account for and measure their digital assets. The American Institute of CPA guidelines require companies that do not meet the definition of investment companies to treat them as intangible assets.

The accounting treatment means that companies investing in bitcoin report the crypto-assets at the prices they paid and mark them down permanently if their value declines over a period of time. Cryptocurrency fluctuations often lead companies to write down the value of their holdings; they can only record gains if they sell them at a profit.

Businesses and accountants have complained for years about the lack of formal accounting rules, but the FASB has rejected three official requests, initially arguing that too few companies use crypto in a material way to justify the time and resources involved. developing new rules. The council changed its tune in 2021, when it received hundreds of requests for action.

Whether you think it’s the future of finance or you think it’s a speculative bubble bursting, I think the move to fair value really offers investors more useful information. This is critical, said FASB member Frederick Cannon.

The FASB will meet again in early 2023 to discuss whether to include crypto token issuers in the potential guidance, any other lingering issues, and how long the proposal should be open for comment, a commentator said. FASB staff member.

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