WSJ: Lack of crypto accounting standards creates investor risks

In the United States, the Financial Accounting Standards Board (FASB) was urged to develop reporting requirements for companies with cryptocurrency holdings. Due to the lack of clear standards, investors face additional risks, according to the Wall Street Journal.

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In recent times, U.S. regulators have given growing attention to the digital asset market. In May, the chair of the SEC Gary Gensler urged Congress to bring clarity to the regulation of bitcoin exchanges. In June he said that the latest rules should meet investor-protection requirements, comparable to those applied in stock and derivatives markets.

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However, there has been no progress in accounting. Last year, FASB did not include the topic on its agenda, saying that cryptocurrency investments have not gained widespread use among companies.

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In June 2021 the Board initiated a public comment collection on its future projects. The organization noted digital assets, noting that it had received \”several\” requests from market participants to include this topic in the program.

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According to the document, in the absence of clear standards, cryptocurrency-holding companies classify them as \”intangible assets\” by analogy with trademarks. Under this accounting treatment, their carrying amount on the balance sheet does not reflect the actual price appreciation.

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According to the recommendations of the AICPA, companies should reassess the carrying value of cryptocurrencies at least once a year. It should be written down if it falls below the purchase price.

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However, if the value rises, a company can recognise the resulting profit only upon sale of the assets. As a result, investors do not see the full picture on the balance sheets of such entities.

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\u201cIn reality you are getting less than half the story,\u201d said Aaron Jacob, head of resource planning at TaxBit, in an interview with WSJ.

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In June, Jacob also sent a letter to FASB requesting clarification on the accounting treatment of digital assets. According to the report, a similar request was independently made by the auditing and consulting firm PwC and a group of congressmen led by Tom Emmer.

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FASB officials suggested the issue could be addressed by allowing companies to apply fair-value accounting to those digital assets whose price \”can be easily determined\”.

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The board is collecting public comments until September 22, 2021. A representative told the WSJ that FASB would consider the received comments \u201cearly next year.\u201d He stressed that it is too early to say what actions the standard-setter might take, if any.

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As a reminder, in August 2020 MicroStrategy converted part of its equity into bitcoin, buying cryptocurrency for $250 million. In June 2021 the company purchased an additional 13,005 BTC for $489 million.

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In October 2020 Square bought 4,709 BTC for $50 million. In February 2021 the payments company allocated $170 million to acquire 3,318 BTC.

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In February 2021, Elon Musk’s Tesla invested $1.5 billion in digital gold.

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