California lawmaker weighs in on FASB crypto proposal

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Dive Brief: Representative Brad Sherman, a California Democrat who has been called a congressional leader by the Los Angeles Times and has sought to ban the asset class, has pushed back against the Financial Accounting Standards Boards’ proposal to update the accounting guidelines for certain digital assets. Sherman was one of 78 stakeholders who provided comments to the FASB during the public comment period that ended Tuesday. But unlike a number of crypto companies that have expressed support, Sherman claimed that cryptocurrencies, with the exception of tokens and stablecoins backed by the US dollar or other major global currency, have no no place on corporate balance sheets. Cryptocurrencies remain highly volatile and speculative bets that are subject to rapid and highly unpredictable price fluctuations…Inclusion of these volatile cryptocurrencies on a company’s balance sheet can make financial reports and valuations regarding the company’s financial health misleading to investors, Sherman wrote in an April letter to the FASB. Overview of the dive:

Many crypto companies lobbied for the current FASB draft which took over crypto accounting standards. Existing standards have been interpreted to mean that crypto should be treated as an intangible asset and written down to the lowest observable value within a reporting period. In this scenario, they must be transported at cost, CFO Dive previously reported.

Under the proposed new approach that the FASB will soon debate, companies would report the fair value of crypto assets in scope based on their price level on a given exchange at the end of the reporting period. Companies would be required to present crypto assets measured at fair value separately from other intangible assets on the balance sheet, under the proposed update to accounting standards.

Sherman’s letter does not explicitly oppose the FASB’s proposal. In fact, he writes that he supports standard setters’ proposal to require companies to recognize the cost of acquiring crypto-assets. However, he urges the FASB to adopt a clear accounting principle that cryptocurrencies should not appear on the balance sheet and that amounts paid to acquire cryptocurrencies should be charged to income as expenses.

The approach outlined in Shermans’ letter would essentially remove the proposed update to accounting standards, wrote Jack Castonguay, an accounting professor at Hofstra University in New York, in an email response to questions from CFO Dive. His proposal effectively treats the purchase of crypto assets as a purchase of food, entertainment, or electricity. Essentially, his proposal wants crypto assets to be treated as if they have no potential for future value.

Sherman, a prominent member of the House Financial Services Subcommittee on Capital Markets, has long been a vocal critic of crypto. In a Bloomberg interview in December, he said crypto was not yet a currency, dismissing it as an electronic pet, and said he feared it would help people defeat financial laws.

More recently, he raised concerns about the crypto industry not paying its fair share of taxes. In a June 5 letter co-signed by Sherman and Rep. Stephen Lynch, a Democrat from Massachusetts, to Treasury Secretary Janet L. Yellen and Internal Revenue Service Commissioner Daniel I. Werfel, the authors claimed that the industry has been a major source of tax evasion and a significant part of the nations tax gap. The letter calls for tax reporting regulations for crypto brokers to bring the industry into compliance.

Shermans’ office did not respond to a request for comment.

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