MicroStrategy Supports Fair Value Model Proposal for Crypto Asset Reporting

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MicroStrategy is the latest to support rule changes proposed by the Financial Accounting Standards Board (FASB) that would eliminate write-down fees for companies holding crypto.

The economic intelligence company is the largest public holder of bitcoins. He held around 140,000 BTC as of March 31.

Crypto-assets, under current generally accepted accounting principles (GAAP), are considered indefinite-lived intangible assets that are subject to an impairment test defined as a permanent decline in the value of an asset.

If the carrying amount of the asset exceeds its fair value, an entity is required to recognize an impairment loss and reduce the carrying amount of the asset to its fair value.

But the FASB’s proposed amendments would instead require entities to periodically measure certain crypto assets at fair value and recognize any changes in fair value in profit or loss, according to draft amendments released in March.

In a letter to the FASB on Monday, MicroStrategy revealed that despite buying 140,000 BTC for approximately $4.2 billion, the company currently reports assets on its balance sheet at $2 billion. This valuation results from the recording of cumulative impairment charges amounting to nearly $2.2 billion.

The market value of the company’s bitcoin holdings as of March 31 was just under $4 billion, double what it was reported under the indefinite-lived intangible asset accounting model, the company added. Company.

Reporting crypto asset holdings using a fair value model, as proposed by the FASB, would allow us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings, which would facilitate the ability to investors to make informed investment and capital allocation decisions, MicroStrategy said in the letter.

Some industry players have said that a crypto-specific accounting standard would encourage more companies to hold such assets without fear of impairment charges due to short-term market volatility.

Similar to MicroStrategys’ latest comments, TaxBit wrote in a March letter to the FASB that the proposals better reflect the economic realities of these assets and would offer investors more accurate and useful information when making capital allocation decisions.

The FASB is ready to accept comments on the proposed changes until June 6.

MicroStrategy suffered $18.9 million in impairments on its digital assets in the first quarter of this year, an improvement from an impairment of $198 million in the fourth quarter of the last three months of 2022.

During the second quarter of 2022, the company incurred impairment charges amounting to $918 million. This period coincided with the crash of the algorithmic stablecoin terraUSD (UST) and its associated coin LUNA, which consequently caused the price of Bitcoin to drop significantly.

Tesla, which bought $1.5 billion worth of bitcoin in January 2021, suffered a $170 million writedown in the second quarter of 2022 despite selling off the bulk of its crypto holdings during of this period.

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