First U.S. rule for crypto accounting would aim at giving investors a better sense of a company’s digital assets through a “fair value” approach.
U.S. accounting standards may be overhauled to specifically factor in crypto accounting, establishing a fair-value approach that would demand certain digital assets be measured at what they’d go for in the markets, according to a change proposed this week by the Financial Accounting Standards Board (FASB).
That’s a departure from the status quo, which only marks unrealized losses and has been seen by the industry as a barrier to crypto adoption.
The non-governmental standard-setting board, which is overseen by the U.S. Securities and Exchange Commission (SEC), has been working to institute standards for companies’ portfolios of assets such as bitcoin and ether, and it issued the long-awaited proposal on Thursday. The suggested addition of crypto to accounting rules would make gains and losses part of companies’ quarterly income reports by insisting that swings in value would be reflected each time a firm files.
The proposed changes, which are open to public comments until June 6, would also require further disclosures about major crypto holdings.
FASB Chair Richard Jones said the changes “would provide investors greater transparency into the fair value of crypto assets held by entities, as well as additional disclosures about the types of crypto assets held and changes in those holdings.”
The existing approach, accounting for crypto as so-called indefinite-lived intangible assets, only focuses on the assets dropping in value. According to the board’s proposal, it “does not reflect the underlying economics of those assets and does not provide decision-useful information.”
Companies holding bitcoin on their balance sheets are likely to welcome the move. Tesla (TSLA) and Microstrategy (MSTR) have had to record unrealized losses in the past over their bitcoin holdings.
The FASB’s fair-value proposal for crypto doesn’t include tokens that are issued by a company itself, nor does it factor in non-fungible tokens (NFTs), whose market value is inherently difficult to measure.