Fair Value Accounting Brings Clarity and Transparency to Crypto and Digital Asset Reporting

“Understanding US GAAP and FASB’s Role in Financial Reporting is Crucial for Informed Investment Decisions in Crypto”

For investors in crypto, it’s important to understand that US GAAP (Generally Accepted Accounting Principles) is the accounting standards that are used in the United States to provide consistency and comparability in financial reporting. The FASB (Financial Accounting Standards Board) is responsible for establishing and improving these accounting standards, which are considered the “generally accepted” accounting principles in the US.

By setting accounting standards, the FASB helps to ensure that companies are reporting their financial information in a consistent and reliable manner. This is important for investors in crypto, as it helps them to make informed decisions about where to invest their money. The FASB’s standards provide transparency and accuracy in financial reporting, which is essential for investor protection and economic stability.

Overall, understanding the role of US GAAP and the FASB in establishing accounting standards is important for investors in crypto, as it helps them to make informed decisions based on accurate and reliable financial information.

“FASB: The Gatekeeper of Accurate Financial Reporting, Investor Protection, and Economic Stability”

The Financial Accounting Standards Board (FASB) is responsible for establishing accounting standards in the United States. Historically, the FASB has not provided specific guidance on how to account for bitcoin or other cryptocurrencies as an asset class, as these assets did not exist when the accounting standards were established.

However, in August 2021, the FASB added a project to its technical agenda to address accounting issues related to digital assets, including cryptocurrencies. The project aims to develop guidance on how to account for digital assets, including how to measure and recognize them on financial statements.

Prior to this, companies that hold bitcoin or other cryptocurrencies as investments have generally been accounting for them as intangible assets, which are subject to impairment testing and fair value measurements. Companies that accept bitcoin or other cryptocurrencies as payment have been accounting for them as a form of revenue.

“New FASB Rule Paves the Way for Fair Value Accounting of Digital Assets”

On October 12th, 2022, the FASB voted to require fair value accounting for digital assets. This change in approach means that companies will be required to account for digital assets, including cryptocurrencies, at their fair value, which is the price at which they could be exchanged in an orderly transaction between market participants.

Previously, companies were treating digital assets as intangible assets and accounting for them at their cost of acquisition. However, under the new standard, the book value of digital assets will reflect their common market value, which will fluctuate based on market conditions and changes in the perceived value of the asset.

This change is significant because it brings the accounting treatment of digital assets in line with other financial instruments, such as stocks and bonds, which are also subject to fair value accounting. It is also a welcome change for companies that hold digital assets, as it provides more transparency and accuracy in financial reporting.

However, it’s worth noting that the new rule is not yet in effect. The FASB is expected to open the matter to public comment, redeliberate the proposal while considering input from stakeholders, and only then issue a final Accounting Standards Update. The timeline for this process is not yet clear, but it is expected to take several months to a year or more. Companies should continue to follow the current accounting standards for digital assets until the new rule is finalized and implemented.