FASB Revises Accounting Rules for Crypto Assets to Reflect Fair Market Value
Summary:
The Financial Accounting Standards Board (FASB) in the United States has finalized new accounting standards allowing cryptocurrency companies and holders to record the value of their assets more accurately. Current regulations classify cryptocurrencies as indefinite-lived intangible assets, meaning their book value can only decrease based on market conditions until they are sold. The updated standards, expected to take effect after December 15, 2024, will require the fair market value of crypto assets to be reassessed each accounting period, reducing cost and complexity and providing more relevant information.
There's positive news on the horizon for cryptocurrency firms and holders as changes to accounting standards in the United States allow for a more accurate reflection of their crypto assets' value. These modifications, finalized by the Financial Accounting Standards Board (FASB) on December 13, fall under the remit of Generally Accepted Accounting Principles (GAAP). Publicly trading companies in the U.S. are mandated to adhere to these standards in their financial reporting. As it stands right now, cryptos are classified as indefinite-lived intangible assets. This means that any loss in value during an accounting period leads to a reduction in their book value – this is known as "impairment". Furthermore, the book value cannot be elevated until the assets are sold, regardless of any increases in the real-world value of those holdings. Michael Saylor, the CEO of MicroStrategy, revealed on Twitter that the FASB has elected to implement Fair Value Accounting for Bitcoin in the fiscal years that commence post December 15, 2024. In the rapidly fluctuating world of cryptocurrencies, this predisposition to 'impairment' may prove disadvantageous by suggesting that a company's assets are of lesser worth than their market value. The FASB, in their Accounting Standards Update, clarified that the partial reflection of the fluctuations in the value of crypto assets does not accurately represent the economic realities of those assets or the financial status of the entity involved. With the updated standards, the fair market value of crypto assets will now be reevaluated in each accounting period and documented accordingly. The FASB believes this alteration will result in more applicable data and decrease both accounting expenses and complexity. This change in regulations comes after a year of deliberation by the FASB, beginning with a call for comments in March and concluding with a vote in September. These new standards will be imposed on fiscal years commencing after December 15, 2024.
Published At
12/13/2023 9:58:53 PM
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