US cryptocurrency accounting standards, using fair value, start year-end.

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The US Financial Accounting Standards Board (FASB) has unanimously voted to change the accounting and disclosure methods for a company's holdings of cryptocurrencies, including Bitcoin. The new rules are set to take effect in 2025 and aim to provide greater transparency for investors and other users of financial statements regarding these volatile assets.

Currently, US companies do not have specific accounting or disclosure rules for crypto assets. They classify these assets as indefinite-lived intangible assets, similar to intellectual property such as copyrights. Companies are required to review the value of such assets at least annually and impair them if their value falls below the purchase price. If the value increases, companies can only recognize gains when the assets are sold, not if they continue to hold them.

Under the new rules, companies must separately record their crypto assets to make it clear to investors and other readers of financial statements the investment value of the company in cryptocurrency. In addition, they will disclose extensive holdings of cryptocurrencies in footnotes for each reporting period, as well as any restrictions on those holdings. They must reconcile or disclose changes in the initial and ending balances of crypto assets by category each year. FASB has agreed that information about crypto assets received as payments and immediately converted to cash does not need to be included in the reconciliation activities.

FASB has also determined that, since cryptocurrencies will be measured at fair value, companies will comply with the disclosure requirements outlined in ASC 820, allowing financial statement readers to understand how the company arrived at its measurement results.

The new FASB rules will require companies to account for digital assets at fair market value, capturing frequent price fluctuations, with gains and losses recorded in the income statement.

These rules also expand disclosure requirements, including details about the cost basis of major cryptocurrency holdings, restrictions on selling assets, and detailed information on cryptocurrency activity during the period from initial to ending balances.

The new requirements apply to cryptocurrencies like Bitcoin and Ethereum, as well as stablecoins pegged to fiat currencies, but do not include non-fungible tokens (NFTs) and wrapped tokens.

All publicly traded and private companies will need to apply the new rules, with an effective date starting with fiscal years after December 15, 2024, allowing for early adoption.

FASB Chairman Richard Jones commented, "I think in my short time serving here, I haven't seen an issue generate this much enthusiasm. We've heard from the vast majority of investors who rely on financial statements for capital allocation that this will give them better information to make decisions, so I'm fully supportive."

FASB board member Christine Botosan added, "It's not often that you see an opportunity where you can both reduce system costs and improve the effectiveness of information decision making. When you can do both of those things at the same time, it makes voting very easy."

How does this impact publicly traded companies?

Under current rules, companies must record their holdings of cryptocurrencies at their original cost. If the value falls below the cost, it is recorded as an "impairment charge," but if the price rises, it cannot be recorded unless sold. This approach has been criticized by the crypto community for only reflecting one side of the value changes.

Automaker Tesla, payment company Block, and software provider MicroStrategy are among the few publicly traded companies that hold cryptocurrencies on their balance sheets. MicroStrategy co-founder and CEO Michael Saylor said, "Fair value accounting is coming to Bitcoin, and this upgrade to FASB accounting rules removes a major impediment to corporate adoption BTC as a treasury asset."