FASB sets disclosure requirements for Crypto Holdings companies ahead of potential proposal

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The Financial Accounting Standards Board said companies would have to disclose details of their top cryptocurrency holdings as part of a new rule proposal expected in the coming months.

The disclosure plan presented Wednesday marks one of the final steps before a rule is proposed that, if approved, would close a loophole for companies holding these assets and provide more information to investors.

There are currently no specific accounting or disclosure rules for crypto assets in the United States. Companies classify them as indefinite-lived intangible assets, similar to intellectual property such as trademarks. Companies must review the value of these assets at least once a year and depreciate it if it falls below the purchase price. If the value increases, companies can only realize a gain when they sell the asset, but not if they continue to hold it.

The FASB, which sets accounting standards for U.S. public and private companies, has made several key decisions in recent months about the scope of its crypto project and accounting for crypto assets. In August, he detailed the criteria for the assets he will include in the project, leaving out non-fungible tokens and some stablecoins. Then, in October, he said companies should use fair value accounting to measure bitcoin and other crypto assets. Businesses and accountants have long been calling for the move because it would allow them to recognize losses and gains immediately and treat digital assets as financial assets rather than indefinite-lived intangibles.

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The FASB said Wednesday that it wants public and private companies to highlight in their financial statements the amount of their crypto assets separately from the amount of other intangible assets, such as patents and trademarks. Businesses should include gains and losses on crypto assets in their net income. This is separate from any change in the amounts companies would record on their books for other intangible assets.

The FASB said companies should disclose a table of material cryptoasset holdings by fair value, essentially market prices at the end of each quarterly and annual period. They would give the cost, fair value, and number of units for each major crypto asset held. Companies would be required to disclose how they determine the costs associated with crypto assets, for example, as a weighted average based on the prices paid for each type of asset.

US accounting rules do not define significant holdings, so it would be up to companies to decide which assets to disclose.

The potential disclosure would require companies to provide the fair value of all restricted crypto assets, typically cryptos that companies cannot sell at least temporarily in quarterly and annual filings, along with the nature and remaining duration of the restriction, and the circumstances that would lift the restriction. For example, companies could receive payment from customers in the form of crypto assets banned from sale for three months. Companies should also break down all activities involving their crypto holdings, such as additions, disposals, gains and losses, between the start and end of an annual period.

The change in measurement, for example, to fair value should result in a different presentation in companies’ financial statements, said FASB board member Fred Cannon. What we were doing matters from an investor perspective, whether you think it’s the future of finance or you think it’s a speculative bubble bursting, he said. I think the move to fair value really allows investors to have more useful information that is essential.

The FASB plans to vote on whether to propose a crypto rule early next year, followed by a proposal in the first half of 2023, a spokeswoman said. He continues to research whether his crypto project should also cover the issuers of the tokens, in addition to the holders of the assets.

Automaker Tesla Inc., payments firm Block Inc., and software provider MicroStrategy Inc. were among the few publicly traded companies with large crypto assets on their balance sheets at the end of their most recent quarter. These companies disclose information about large crypto holdings, but potentially not the full picture.

The companies are also facing calls from US regulators for greater crypto-related disclosure. The Securities and Exchange Commission said last week that it was asking public companies to detail their exposure to struggling crypto entities following the collapse of crypto exchange FTX and its subsidiaries.

Write to Mark Maurer at [email protected]

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