The Financial Reporting Standards Board voted Wednesday at its meeting to measure digital assets like cryptocurrencies at fair value , as opposed to the "value less depreciation" method common today.
FASB staff believe this approach more closely aligns the value of crypto assets with valuations as financial instruments used for investment purposes, as well as fair book value, said Lindsey Hoyer, a graduate technical assistant at the FASB. She said the approach would suit companies that currently use regulatory guidelines that require industry-specific or fair value measurements. Hoyer added that most analysts agree that 90% want fair value laws.
The board unanimously backed the decision. Board member Gary Buser said the fair value report is the best way to capture the real economics of the issue given the wild price swings in the digital asset space.
“We've heard from investors that they want transparency and the only way to achieve that is fair value. $ at $60,000 and at $19,000. The only way to get reliable information about the asset is its fair value,” he said.
The Commission believes that fair value disclosure should be mandatory, not just permitted for use by parties. Board member Christine Botosan said that since this whole project has some consistency in reporting, making it optional doesn't make much sense.
“I would make it an obligation, not an option. We've discussed how fair value is better information and lowers costs for consumers and businesses, so it's hard for me to justify why you're still allowing businesses to value these assets after a lower cost option. For consumers, the comparison is between the damage model and the damage model.
Similarly, the Board agreed that there should be no exception for a dead market where a particular token is not actively traded, such as b. There is justification for continuing to use the cost depreciation model or explaining that the fair value is nil. Reservations
For example, Botosan finds that when not actively traded, it is known to have a real value of 0. She said it would be difficult to conclude that the real value of the property will be zero when the market goes down. . According to her, in terms of Tier 2 hierarchy, it is difficult to say that actively traded and non-traded crypto assets are the same because trading activity accounts for a large portion of the value. And it is difficult to say whether it is appropriate to use the cost method with regard to step 3. Measurement, and if the ownership does not change, it is not possible to know the internal cash flows, which means that the income approach will reduce the cost to zero.
"But I realize that's my opinion and there are experts doing research on these issues and actually the business, the auditor and the regulator have to make decisions in the final model, so I prefer not to go into more detail here Orientation, so I also agree with the opinion of the employees,” he said.
One area where there is no sound is whether these assets should be capitalized or expensed, especially when it comes to other business expenses such as expansion of offerings and due diligence. within reason. Botosan, Frederic Cannon and Gary Busser supported capitalization. Cannon says this approach better reflects true asset economics.
"I think consolidation reflects capital gains and losses better than costs," he said. I think that's why investment companies do this type of accounting: they capitalize because it better reflects current profits and losses, and even though they are now classified as intangible assets, the economy of what people do is very similar. The best way to measure the gains and losses of a holding is to take an investment company approach.
Board member Marcia Hunt said the consensus so far has been to support the fair value model. It is therefore difficult for him to see how paid premiums, rebates or other costs make sense in the long term. A real value token is an asset in the end.
"So I was happy with the costs, but I understand that while that may be a direction, there needs to be a word of caution in how we explain it internally...I'm thinking more of the principles that we have of the properties." They have value, and I focus more on Day 2 bookkeeping than Day 1 bookkeeping, so I feel like spending is generating more revenue for us,” he said.
In the end, the vote ended in a tie. FASB Chairman Richard Jones asked if anyone wanted to change their vote. Board member Jim Crocker, who had previously declined to comment on the matter, ultimately decided to support the expense.
“I think the broadcast of the auction is a marketing expense from an economic perspective, but if you exclude the broadcast of the auction advertising, I can live with the cost,” he said. declared.
The board agreed that no waivers or changes would be required for private companies effective immediately.
This is the latest in a series of FASB rulings regarding the treatment of digital assets. Most recently, in August, the board voted to narrow the scope of the proposed Digital Assets Directive, agreeing five specific criteria for the scope of the directive, which have yet to be determined. determined. Asset: Must meet the GAAP definition of an intangible asset (which does not include financial assets). Failure to provide Owner with legal title or ownership of Property goods, services or other assets (for example, by contract); created on or based on a distributed ledger or "blockchain"; Secured by cryptography; And be flexible.
Accountants respond well
The news is welcomed by digital asset accountants, the move to fair value will be more beneficial for investors and easier for creators. In fact, Mark DeMichael, a partner who leads Citrin Cooperman's Top 100 Digital Assets practice, says this should have happened a long time ago because current methods don't make much sense.
"I think it's not a problem. I'm glad they decided to do it. I think they've waited a long time to do it! You should have done it a long time ago. That's what what are the price and value of crypto assets. Most bitcoins are very easy to get from them, so obviously it should be worth a good amount of money." .
Patrick Camuso, founder of Camuso CPA, which specializes in blockchain, cryptocurrencies and the metaverse, agreed that the current approach does not accurately reflect the nature of these assets because the law deals with things like patents and other intellectual property. . .
“Intangible accounting does not reflect the global nature of crypto assets, which are more like financial assets than intellectual property and other intangible assets. The intangible accounting approach does not offer businesses a better way to prepare financial statements that reflect their current financial situation,” he said.
Shane Stein Smith, CPA and professor at Belman College and founder of the Blockchain and Cryptoasset Research Institute, agreed and found it encouraging that the FASB is taking the lead on this issue after several years.
“This is an important first step towards developing consistent, consistent and up-to-date accounting standards for the crypto space. After years of consultation with auditors and key players in the crypto space, the FASB recognizes the need to play a leadership role Like this authoritative accounting advice, there are still steps to be taken and some crypto assets are excluded from the current study and research process, but this is certainly an evolution positive, he said.
It is believed that this decision requires a lot of calculations. Smith says most companies already track the fair market value of crypto assets.
"Policymakers will take an example of the asset class and market conditions that have shifted very quickly from the periphery to traditional financial transactions," he said.
In fact, DeMichael says, companies may find this method easier than other approaches used today, such as the no-cost depreciation model mentioned above.
"For companies that have suffered losses, it's much easier for them to keep the books because they have to record everything in parts, so if you buy a bitcoin 50 times and one part is worthless and one part They weren't worth anything. They needed a separate timeline to track those devaluation payments and when they were refunded. So under the old system, "It was a big headache for them. This way it will be much easier," he said.
Camuso agreed, saying it would simplify accounting for crypto assets and bring more transparency, as companies can see the fair value of the volatile assets they hold to more accurately represent them, as well as the overall economy.
“As passionate about the wider adoption of cryptocurrencies, I am pleased with this change in accounting. I hope these new accounting rules will encourage more companies to consider having digital assets on their balance sheet, because they will no longer be based on the fair market value and book value of their crypto assets. Because there is no price disparity,” he said.