Lawmakers and Accountants Push for Strong Crypto Accounting Rules

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Accountants and lawmakers are urging standard setters to fill a void and write concrete rules that tell businesses how to account for bitcoin and other cryptocurrency assets.

The assets, for which there are no binding US accounting requirements, have attracted interest from regulators after sharp swings in recent months and investments from companies such as electric car maker Tesla and the Square payment provider. Bitcoin, which hit a record high of $ 63,381 in April, has halved since then, reflecting the volatility of other digital currency assets.

The Securities and Exchange Commission, which oversees the U.S. stock markets, is considering new regulations for the cryptocurrency market to prevent fraud. President Gary Gensler, who taught digital currencies courses at the Massachusetts Institute of Technology before he took office, argued that investor protection rules similar to those that cover derivatives and stocks should apply to crypto exchanges.

The Basel Committee for Banking Supervision, which sets global standards for banking regulation, suggested last month that banks dealing in crypto assets should hold substantial buffers to cover potential losses.

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From an accounting perspective, however, there hasn’t been much progress. The Financial Accounting Standards Board, which sets accounting standards for public and private companies and nonprofit organizations in the United States, decided last year not to add the topic to its agenda, saying the Investing in cryptocurrencies is not widespread among businesses.

Last month, the FASB launched a consultation on the agenda, its first in five years, soliciting public opinion on what its long-term priorities should be. Based on the feedback, the board may consider new accounting projects such as digital asset financial reporting. The FASB plans to review the responses, which are expected on September 22, early next year, a spokeswoman said.

It is too early to say what action, if any, the FASB would take on cryptocurrency investments, the spokesperson said.

The question of how companies account for crypto assets is separate from how they pay taxes on investments.

Because there are no specific binding accounting rules yet, companies holding cryptocurrencies classify them as indefinite-lived intangibles similar to brands and website domains, in accordance with the non-binding guidelines of Association of International Certified Professional Accountants.

Under these guidelines, companies must review the value of these assets at least once a year. Companies should write down the value if it drops below the purchase price, based on the outcome of their impairment test. However, if the value increases, companies can only realize a gain when they sell the assets, not when they own the assets.

This creates an imperfect picture for investors looking to understand a company’s crypto investments. You really get less than half the story, said Aaron Jacob, head of enterprise resource planning at software provider TaxBit, which helps individuals and businesses determine the taxes they owe on their. cryptocurrency holdings. Jacob wrote to the FASB last month asking them to set rules for crypto assets.

A bipartisan group of seven members of Congress led by Republican Tom Emmer made a similar request to the FASB in May, highlighting the surge in the value of these digital assets.

The absence of thoughtful and carefully crafted authoritative guidance from the FASB threatens the ability to create accurate and consistent financial reporting for a large and rapidly growing financial asset class, they wrote. Emmer introduced a bill last week asking Congress to provide a clear definition of digital assets under U.S. securities law.

The Big Four accounting firm PricewaterhouseCoopers has said it is encouraging standard setters to look into accounting for cryptocurrencies. KPMG declined to comment, while Deloitte and Ernst & Young did not immediately respond to requests for comment.

So far, most CFOs have avoided crypto investing due to concerns about volatility. The lack of proper accounting rules only exacerbates these concerns, said Deniz Appelbaum, assistant professor of accounting and finance at Montclair State University. If there was a set of standards, CFOs would know how to do it and whether an investment in coins is appropriate for their business, she said.

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For companies new to cryptocurrency, shareholders want to see details like the underlying purpose of crypto investments, purchase price and quantity, said Ben Wechter, research analyst at Zion. Research Group, which provides investors with information on accounting and taxation. Questions.

Tesla is a leading corporate investor in cryptocurrencies, which revealed in its annual report in February that it had purchased $ 1.5 billion in bitcoin. As of March 31, its bitcoin holdings stood at $ 2.48 billion, according to a quarterly record.

Square recorded cryptocurrency holdings of $ 472 million as of March 31, compared to $ 136.5 million at the end of December.

MicroStrategy, a software company based in Tysons Corner, Va., Said it had $ 1.94 billion in bitcoin as of March 31, up from $ 1.05 billion at the end of December, partly due to purchases additional bitcoins during the first quarter. Chief Executive Officer Michael Saylor recently said the company is sticking with the current accounting method for the time being.

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An alternative to treating crypto holdings as intangible assets could be to allow companies to apply fair value accounting rules for certain digital assets if fair value can be easily determined, the FASB said. Bitcoin would meet the criteria, according to Zion Researchs Wechter.

Under fair value accounting, companies immediately recognize losses and gains in value and treat digital assets as financial assets, not intangibles. This approach more accurately captures the value of digital assets, said Dan Amiram, vice dean and professor of accounting at Tel Aviv University. But, because it incorporates both gains and losses, fair value accounting can create even more volatility on companies’ income statements, he said.

Practitioners expect digital asset accounting to remain a headache for executives due to trading volatility, which investors and analysts want reflected in financial statements.

If there’s market value, you want it on company balance sheets, said Shripad Joshi, senior director of rating firm S&P Global Ratings.

Write to Mark Maurer [email protected]

This article was published by Dow Jones Newswires

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