New Accounting Guidelines for Crypto Holdings
The US Financial Accounting Standards Board (FASB) has unanimously voted to introduce new accounting guidelines for companies with significant cryptocurrency holdings. This move comes after the FASB expressed support last year and aims to require companies to report their cryptocurrency assets at their fair value, reflecting their most up-to-date worth.
Crypto Accounting to Determine Assets at “Fair Value”
The previous model only accounted for decreases in asset value until the asset was sold. The updated guidelines aim to measure crypto assets at fair value, capturing both increases and decreases in value. The FASB believes that this provides a more accurate representation of a company’s financial position. Additionally, the amendment will require detailed disclosures about the types and changes in crypto asset holdings to reduce complexity and meet investor needs.
Companies will need to implement these fair value rules in fiscal years beginning after December 15, 2024, or in 2025 for those following the calendar year. However, companies can choose to apply the rules immediately.
The FASB’s change in stance on cryptocurrency-specific rules is influenced by major corporations like Tesla and MicroStrategy investing in Bitcoin.
New Guidelines Exclude NFTs and Stablecoins
The new guidelines will focus on blockchain-based assets that meet specific criteria for fungibility and cryptography. However, non-fungible tokens (NFTs) and stablecoins will not be included. The FASB decided to wait for more market data before expanding the scope of the rules, despite some entities advocating for the inclusion of wrapped tokens that facilitate cross-blockchain swaps.
The proposals were initially submitted on March 23, 2023, with the accounting for crypto assets being deemed a top priority by the FASB. Established in 1973, the FASB is an independent body responsible for setting accounting standards in the United States.
The FASB is ahead of the International Accounting Standards Board (IASB) in addressing crypto and fair value. Korea’s Financial Services Commission (FSC) issued its own cryptocurrency accounting guidelines on July 11, favoring the IASB norms. In September, the IASB’s chair warned against conflicting with local regulators when issuing crypto accounting guidance.
Hot Take:
The introduction of new accounting guidelines by the FASB highlights the increasing recognition of cryptocurrencies as significant assets. By valuing crypto assets at their fair value, companies can provide a more accurate financial position to investors. However, the exclusion of NFTs and stablecoins shows that the industry is still evolving, and more market data is needed for comprehensive rules. The FASB’s proactive approach puts it ahead of global accounting bodies, indicating the growing importance of crypto in financial reporting.
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