Companies will soon be required to report their Bitcoin and other cryptocurrency holdings in a new way according to a unanimous resolution by the FASB. The new regulations, which will take effect in 2025, are meant to make information about these risky assets more readily available to investors and other users of financial statements.
On Wednesday, the board met to discuss public feedback on the proposed accounting standard update and authorized staff to finalize the new standard for fiscal years beginning after December 15, 2024. Before the end of the year, the final version will likely be accepted in a written vote.
The FASB, an independent standard-setting body regulated by the SEC in the United States, recommended the regulation back in March. The proposed adjustments were a departure from the current practice of marking these assets for their unrealized losses, which is considered as a hindrance to greater crypto use. By incorporating cryptocurrency into accounting standards, businesses will be required to declare cryptocurrency-related profits or losses as part of their quarterly earnings.
I think we heard overwhelmingly from investors that allocate capital based on the use of financial statements that this will provide them better information to make their decisions, and so I’m fully supportive of it.
Richard Jones, the board’s chairman.
The existing regulations state that corporations must record their cryptocurrency holdings at their original cost and then write them down as a “impairment charge” if their value dips below cost, but they are not allowed to mark them up if the price increases. Some people think this approach is flawed since it only shows one side of price shifts. Companies will have to record digital assets at their fair market value under the new FASB regulations, which takes into consideration the volatility of cryptocurrency prices. The income statement is where profits and losses are recorded.
The new regulations also call for more extensive disclosure, including as the cost basis of significant cryptocurrency holdings, prohibitions on selling the assets, and a reconciliation of crypto asset activity from beginning to ending balances throughout the time.
Our mission is to best reflect the economics of a transaction provide investors and allocators of capital with the information they need I think this moves the needle there.
Richard Jones, the board’s chairman.
Coins like Bitcoin and Ethereum, as well as stablecoins backed by fiat currencies, are subject to the new regulations. After much deliberation, however, the board concluded that the scope does not include non-fungible tokens (NFTs) or wrapped tokens that provide claims on other crypto assets.
Crypto assets must be segregated from other intangible assets like as patents and trademarks in quarterly and yearly financial statements for publicly traded corporations. The same applies to private enterprises, whose financial disclosures must adhere to the same standards. Gains or losses on cryptocurrency holdings must be accounted for when calculating a company’s bottom line.
