- FASB’s new rules mandate fair-value accounting for cryptocurrencies, aligning them with the treatment of financial assets.
- Public companies must now separate their crypto assets from intangible assets.
The Financial Accounting Standards Board (FASB) voted to adopt a new accounting and disclosure rule for cryptocurrencies, addressing a long-standing gap in financial reporting for companies holding these digital assets.
Until now, there were no specific accounting or disclosure rules in the United States regarding cryptocurrencies. Companies classified crypto assets as indefinite-lived intangible assets, placing them in the same category as intellectual property, like copyrights.
Recognizing the need for a more accurate reflection of the financial condition of companies holding cryptocurrencies, the FASB voted unanimously to introduce a new standard.
This standard compels the use of fair-value accounting for cryptocurrencies like Bitcoin [BTC], bringing them in line with financial asset treatment. This change enables companies to immediately recognize both gains and losses, departing from the previous classification as indefinite-lived intangible assets.
Enhancing financial reporting for cryptocurrencies
Under the new rule, public companies must disclose their crypto assets separately in quarterly and annual financial statements from intangible assets such as patents and trademarks.
Private companies must also adhere to this disclosure requirement in their financial reports. Furthermore, businesses must now incorporate gains and losses from their crypto assets into their net income.
The rule, set to take effect for 2025 annual reports for both public and private companies, allows for early adoption. The formal issuance of the standard is expected by year-end.
The FASB’s decision is poised to offer substantial benefits to companies while ensuring transparency in financial reporting. Vice Chair Jim Kroeker emphasized that the advantages of the rule likely outweigh the compliance costs for businesses. He added this could even lead to cost savings in some cases.
How businesses will benefit
Notably, some prominent companies like Tesla, Block, and MicroStrategy hold cryptocurrencies on their balance sheets. These businesses have been among the proponents of the new rule, arguing that it provides necessary clarity and transparency for investors.
As part of the proposal, the FASB sought public input on whether additional information related to crypto gains and losses, the purpose of holding crypto, and cryptographic private keys should be disclosed. However, the board ultimately decided not to require these specific disclosures.
Regarding private keys, Block expressed concerns about disclosing such information, emphasizing the need for confidentiality. MicroStrategy suggested that disclosure about the nature and purpose of holding crypto may become less relevant as cryptocurrencies gain wider adoption.
Despite these concerns, the FASB did not incorporate these additional disclosures into the rule, deeming them unnecessary for investors. Some companies raised questions about the exclusion of crypto assets with “enforceable rights.”
However, the board decided to retain this term, citing the need for project expediency.