FASB Votes To Introduce New Fair Value Accounting Rules For Bitcoin

What happened?

  • Under new rules expected to be published by year end, companies that hold or invest in [bitcoin] will be required to report their holdings at fair value, a measurement that aims to capture the most up-to-date value of an asset - including rebounds in value after prices dip. While the new standard will inject volatility into the earnings of companies that are heavily invested in [bitcoin], the ability to record recoveries will be an improvement over the current practice, companies and accountants have told the Financial Accounting Standards Board for months.
  • The rules will go into effect as soon as 2025, but companies will have the option to apply them early, FASB agreed.
  • U.S. companies currently default to an American Institute of CPAs practice guide that treats [bitcoin and other crypto assets] as an intangible asset, a category that includes things like trademarks, copyrights, and brands - all items that, unlike [bitcoin], are rarely traded. This means companies record the value of their holdings at the historical price they paid and assess their holdings every quarter for impairments, or value declines. If the price of bitcoin drops even briefly during the period, it’s considered impaired. Companies can’t revise values upward if the market recovers.
  • The board kept its focus narrow, covering assets that are created or reside on distributed ledgers based on blockchain technology and are secured through cryptography. The crypto assets have to be currently classified as intangible assets, as defined by US accounting rules, and fungible, meaning they can be interchanged with assets of the same type.
  • Non-fungible tokens, or NFTs—unique digital tokens that can be anything from video clips to digital sports trading cards—won’t be covered by the rules. Stablecoins and wrapped tokens—digital tokens that allow crypto from one blockchain to be used on another—also aren’t covered.

The current way that Bitcoin is tracked on balance sheets is as an intangible asset, which means that if the price drops below the company's BTC purchasing price, then it counts as an impairment charge on the books (even without selling). However, if the BTC price increases above the original purchasing price, the company isn't allowed to report those gains on their financial statements without selling their BTC.

Under the new fair value accounting rules, companies are required to routinely reassess the market value of their digital assets and report any fluctuations - both positive and negative (without having to sell first). This gives a more realistic view of a company's financial health and is more favorable to those who hold Bitcoin, increasing its appeal as a treasury asset.

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