The Financial Accounting Standards Board (FASB) has unanimously approved accounting rules for the fair value of cryptocurrencies held by companies, according to media reports. The rule will take effect in 2025.
FASB is a US organization that sets accounting and reporting standards for organizations that follow US Generally Accepted Accounting Principles (GAAP). In March, it sought comments on proposed changes to the FASB’s accounting standard codification.
The proposal was discussed and put to a vote on 6 September.
Fair value is the estimated price of an asset taking into account current market value and other determinative factors. The FASB made a “tentative” decision on fair value accounting for crypto assets in October 2022.
Christmas comes early because @saylor $MSTR And other companies with Bitcoin on their balance sheets!
FASB is moving to fair value reporting of Bitcoin holdings
should @swan Host a livestream today to explain what it means?
— Cory Klipsten | Swan.com #Bitcoin (@coryklipsten) September 6, 2023
The previous practice required companies to keep crypto impairment losses on their balance sheets due to sudden asset depreciation even after the digital asset recovered its value.
Related: How to Handle Cryptocurrency Trading Gains and Losses on Your Balance Sheet
The new accounting method will increase the volatility of the earnings of companies that hold large amounts of cryptocurrencies, but allow them to record the financial recovery from rising prices of cryptocurrencies. Companies can start using fair value accounting for their cryptocurrencies immediately if they so choose. FASB member Christine Botosan said:
“Rarely can we reduce system cost and increase the decision usefulness of information at the same time, and this makes it very easy to do both.”
In addition to crypto-native companies like Coinbase, the rule change will affect investment firms as well as companies with large cryptocurrency holdings such as MicroStrategy and Tesla. MicroStrategy chairman Michael Saylor wrote on X:
“#Bitcoin is on the verge of adopting fair value accounting. The update to FASB accounting rules removes a major barrier to corporate adoption of BTC as a treasury asset.”
To accommodate these changes, cryptocurrencies will become an item under “intangible assets” in financial accounts.
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