Crypto companies and institutions holding crypto assets will be able to more realistically account for the value of their cryptocurrencies under changes to accounting rules in the United States. The Financial Accounting Standards Board (FASB) gave final approval to the new rules on December 13th. As a reminder, the FASB is an organization that sets accounting and reporting standards in accordance with U.S. generally accepted accounting principles (GAAP). GAAP financial statements are required of companies trading on public markets in the United States. “FASB has formally adopted fair value accounting for Bitcoin for fiscal years beginning after December 15, 2024. This update to accounting standards will encourage the adoption of BTC as a treasury reserve asset by corporations around the world,” the head of Microstrategy commented on X (formerly Twitter) Michael Saylor (@saylor) December 13, 2023
Under current practice, cryptocurrency is considered an indefinite-lived intangible asset and is therefore subject to impairment. This means that the value of crypto assets is reduced on the books if they lose value during the accounting period, and the recorded value cannot be increased until the assets are sold, even if the value of the assets increases before then. This is a disadvantage in a volatile cryptocurrency market because it can cause a company’s assets to be worth less than their market value. The FASB stated in its accounting standards update: “Accounting only for decreases, but not increases, in the value of cryptoassets in financial statements until they are sold does not provide appropriate information that reflects (1) the underlying economics of those assets and (2) financial position of the enterprise.”
Under the updated accounting standards, the fair value of crypto assets – the estimated market value – will be measured each reporting period and reflected on companies’ books. The FASB update said the change will provide more relevant information and reduce accounting costs and complexity. “The latest FASB ruling will have a big impact on Bitcoin. But what is the FASB and why should you care? Time for corporate treasury,” James Lavish (@jameslavish) commented on November 14, 2022.
The FASB finalized the new rules after a review process that began last year. The agency issued a call for comments in March and voted on the changes in September. The updated rules will take effect for fiscal years beginning after December 15, 2024.
