The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to address the accounting for and disclosure of crypto assets. The ASU’s amendments improved the accounting for certain crypto assets by requiring entities to measure them at fair value and recognize fair value changes in net income each reporting period.
Richard Jones, the FASB Chair, said the new standard responded to feedback from stakeholders of all backgrounds who indicated that the Board should prioritize improving crypto assets’ accounting and disclosure. The amendments also required entities to improve the information provided to investors about significant holdings, contractual sale restrictions, and changes between reporting periods.
FASB enhances corporate Bitcoin accounting rules
HISTORY: FASB FAIR VALUE ACCOUNTING RULES FOR #BITCOIN OFFICIALLY TAKE EFFECT TODAY
Previously, companies could only value BTC at the price they bought, NOT the gains
THE CORPORATE ADOPTION WAVE 🙌 pic.twitter.com/3NHmLsEauX
— The Bitcoin Historian (@pete_rizzo_) December 16, 2024
FASB’s fair value accounting standard, which will be officially implemented starting today, allows companies like MicroStrategy to use fair value measurement methods to more accurately reflect the real value of Bitcoin assets. Previously, companies had to use the impairment loss accounting method, which reflected the falling value of Bitcoin as a loss in their accounting books. It was also difficult to reflect the actual increase in Bitcoin’s market value in accounting.
Applying fair value accounting standards would allow Bitcoin’s market value fluctuations to be reflected in real time. The regulatory shift improved investor confidence and aligned Bitcoin valuation with market conditions. Many analysts expected this clarity to further increase institutional interest in Bitcoin.
“It will provide investors and other capital allocators with more relevant information that better reflects the underlying economics of certain crypto assets and an entity’s financial position while reducing cost and complexity associated with applying current accounting.”
Early adoption of the ASU amendments would also be permitted for both interim and annual financial statements that still need to be issued. The ASU’s amendments will apply to all assets that meet the definition of intangible assets under the FASB accounting standard codification.
Bitcoin to gain appeal as treasury reserve asset
According to the FASB, the fair value rule marked a critical point for the role of digital assets like Bitcoin in corporate finance. Under the new standard, companies would be able to hold Bitcoin without concerns over impairment-driven reporting issues.
MicroStrategy’s founder and Chair, Michael Saylor, said that upgrading accounting standards would facilitate corporations adoption of BTC worldwide, as a treasury reserve asset. He expected MARA to be the next Bitcoin company to be added to the Nasdaq 100.
Saylor identified the FASB fair value rule as one of the three factors pushing Bitcoin’s price towards $1 million. He also emphasized that traditional bank custody would drive Bitcoin’s bullish trend. The MicroStrategy Chair added that bank custody services increased mainstream confidence and Bitcoin adoption by providing secure investment channels.
While the new guidance applied to assets that met the scope criteria under ASC 350-60, not all assets would meet these criteria. Deloitte reported that wrapped tokens such as WBTC (Wrapped Bitcoin) would not be included in the scope of the new rule since such tokens provided their holders with the right or claim to the underlying wrapped crypto assets. Entities would need to use ‘judgment’ in accounting for wrapped tokens even if the underlying token was within the scope of the amendments.
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