FASB demands companies to report to report Bitcoin holdings at fair market value 

The Financial Accounting Standards Board (FASB) published the Accounting Standards Update (ASU) not long ago to disclose changes to the FASB Codification, including modifications to non-authoritative SEC content. Cryptocurrency will be measured at fair market value from now on, so companies that hold Bitcoin (or Ethereum) must record all assets acquired at the price they sell for in the open market, which implies tracking those values over time to know how much the coins are worth. The aim is to have an accurate valuation or assessment of its worth. The move will benefit companies who buy Bitcoin of millions of dollars worth. On this note, household names like MicroStrategy, Tesla, Block, and lesser-known players can be mentioned. 

Under the existing regulations, losses must be reported if the cryptocurrency shows a lower market value than the purchase price, even if they haven’t sold the assets. Under the new rules, each reporting date will highlight changes in fair value recorded through earnings. The amendments to the accounting principles will likewise enhance the information made available to investors regarding an entity’s holdings of cryptocurrency by calling for disclosure about considerable holdings, contractual sale restrictions, and changes during the reporting period. Simply put, the FASB seeks to improve the reliability and relevance of financial information so that investors, stakeholders, and the general public can judge a company’s or organisation’s financial health. 

The changes aren’t due to take effect until December 15, 2024, but further information is likely to be released  

The FASB guidelines are the first of their kind in the United States. The updated regulations will come into force on December 15, 2024, and are poised to have significant implications for cryptocurrency holdings when they come into effect. Entities must apply the new standards to all cryptocurrencies bought and sold before the effective date, recording a res effect adjustment to the net assets as of the start of the year of adoption. Previously, cryptocurrencies met the definition of intangible assets, expected to generate economic returns for the company in the future. They weren’t calculated at the selling price but at the lower cost price or the realisable value. 

As mentioned earlier, in 2024, the new rules will kick in for both private and public companies, but considering that the fiscal year begins after this date, it translates into 2025 for calendar year-end companies. With fair value accounting, it’s crucial to ensure valuations are correct – income isn’t measured from profit/loss reports but actual value. One of the best ways of determining the fair market value of Bitcoin is by listing it on an exchange. The fair market value represents the amount that the cryptocurrency can be sold for or a value that’s fair for the buyer and seller alike. From now on, companies with Bitcoin on their balance sheets can ride the highs and lows of the cryptocurrency market. 

This could make companies more likely to add Bitcoin to their balance sheets 

The innovative frameworks were unanimously voted by the Board in September, with closing taking place in December. Attention must be paid to the fact that there’s a narrowly defined scope as regards the range of digital assets. To be more precise, the final standard disregards mention of wrapped tokens, so they’re not eligible for fair value treatment on account of the fact that a wrapped token is essentially exchanging one token for the other via a smart contract or code on the blockchain. The possession of such holdings doesn’t qualify as a pervasive issue, and their inclusion could delay the release of the standard. Operating assets must be purely digital assets that use distributed ledgers over the Internet to prove ownership. 

Firms will have to report unrealised gains or losses, the inevitable outcomes of investing, on their books in the owner’s equity section of the balance sheet. More exactly, the tax system provides an actual benefit if the price of the cryptocurrency increases, as it’s not necessary to sell to capture it. Companies and organisations would, therefore, be encouraged to spend their existing cash on their balance sheet to acquire large quantities of Bitcoin. The ecosystem and the regulatory environment, especially for Bitcoin, have advanced to the point that this strategy isn’t out of the ordinary. 

Based on the feedback provided by stakeholders to the FASB, the current directive doesn’t provide sufficient information for investors and other parties. A company’s accounts receivable will focus mainly on decreases, not increases, in the value of cryptocurrency, so it won’t provide relevant information that indicates the underlying economics of those assets or the entity’s financial position. According to Michael Saylor, executive chairman and co-founder of MicroStrategy, it would be simpler to adopt Bitcoin as a treasury asset and not use it in trade or business. As such, it would be most likely considered a capital asset, so any gains or losses incurred would likely be capital gains or losses. 

Fair value changes will be reported as net income for companies adopting the new standard 

Any business that holds Bitcoin, Ethereum, etc., must prepare for increased scrutiny and a more meticulous reporting process. Cryptocurrencies will be measured at fair market value for the reason that it reflects the underlying economics of the transactions. The idea is to align the measurement of digital assets that use cryptography and distributed ledger technology to record transactions with that of other assets held for investment purposes, which are recorded at fair value. Fair value changes will be reported as net income for tax purposes. There’s no better time than now to learn how to calculate gains and losses to be recognised in net income. 

For the time being, no specific rules have been elaborated with respect to how companies and organisations must acknowledge digital currencies and measure the amount they own. In default of rules, businesses that don’t pass the standards of investment companies have defaulted to an American Institute of Certified Public Accountants practice guide that deals with cryptocurrencies as intangible assets, recording their tokens at the price they paid and marking them down forever if their value decreases. 

The editorial unit