The FASB’s New Rules for Accounting and Disclosure of Cryptocurrencies
The Financial Accounting Standards Board (FASB) has unanimously voted to change how companies account for and disclose holdings of cryptocurrencies such as Bitcoin. These new rules, set to take effect in 2025, aim to provide investors and financial statement users with greater transparency regarding these volatile assets.
FASB’s Role and Investor Feedback
The FASB, established in 1973, is recognized by the U.S. Securities and Exchange Commission as the designated accounting standard setter for public companies. Chairman Richard Jones states that investors overwhelmingly support these changes as they believe it will provide them with better information for decision-making.
Transitioning to Fair Market Value
Under the current rules, companies record cryptocurrency holdings at their original cost and write them down if their value drops below cost. However, they cannot mark them up if the price rises. The new FASB rules will require companies to account for digital assets at fair market value, capturing frequent price fluctuations. Gains and losses will be reflected in the income statement.
Expanded Disclosure Requirements
The new rules also expand disclosure requirements, including details on the cost basis of major cryptocurrency holdings, restrictions on selling the assets, and a reconciliation of crypto asset activity. This aims to provide investors and capital allocators with the necessary information to make informed decisions.
Scope and Exclusions
The new requirements apply to cryptocurrencies like Bitcoin and Ethereum, as well as stablecoins pegged to fiat currencies. However, non-fungible tokens (NFTs) and wrapped tokens are excluded from the scope, which has drawn criticism for omitting an important aspect of the blockchain ecosystem.
Effective Date and Adoption
All public and private companies will need to apply the new rules, with an effective date for fiscal years beginning after December 15, 2024. Earlier adoption is permitted. Most commenters have stated that the transition will not involve significant costs or effort, as existing processes have already provided the necessary infrastructure.
Hot Take: Fair Value Accounting Boosts Bitcoin
The new FASB rules have been welcomed by proponents of Bitcoin, as fair value accounting eliminates a major obstacle to corporate adoption of the cryptocurrency as a treasury asset. This rule change also benefits cash-rich companies seeking to protect their bond portfolios against debasement.
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