- The Financial Accounting Standards Board agrees on new accounting guidelines to help publicly listed companies report on their crypto-asset investments.
- The new rules on how digital assets are reflected in business financial reporting will not include NFTs or wrapped tokens.
- The FASB guidelines are expected to take effect in January 2025.
The United States Financial Accounting Standards Board (FASB) has unanimously passed new rules for accounting for the fair value crypto holdings by companies, according to media reports. The rules are expected to take effect in 2025.
The Financial Accounting Standards Board (FASB), a non-governmental organization regulated by the U.S Securities and Exchange Commission (SEC), sets accounting and reporting standards for organizations that follow U.S. Generally Accepted Accounting Principles (GAAP).
On Aug.6, the FASB unanimously voted to change how companies account for and disclose their holdings of cryptocurrencies like bitcoin and other digital assets.
Expectations of the FASB
The rule requires companies to implement fair-value criteria in accounting for digital assets. Companies have to review the value of such assets at least once a year and write it down if it drops below the purchase price. If the value were to rise, companies can record a gain only when they sell the asset, not if they continue holding it.
The guidelines are expected to be operational at the start of the year 2025 with an exemption of an early application as agreed by FASB. Companies have repeatedly rallied for this change, as it would allow them to recognize losses and gains immediately, and treat digital assets as they would some financial assets instead of as indefinite-lived intangible assets.
“I think in my brief term here, there hasn’t been an issue that has excited such passion from people,” said FASB Chairman Richard Jones.
FASB board member Christine Botosan agreed, saying, “It’s not very often that we can both take costs out of the system and improve the usefulness of information,” she said. “It makes it a really easy vote when we can do both of those.”
Public companies’ financial statements will have to disclose their crypto assets, separating them from intangible assets like patents and trademarks, on a quarterly and annual basis. Private companies must do the same in whichever financial reports they compile. Businesses will have to include gains and losses on their crypto assets in their net income. This is effective for the fiscal years beginning after December 15, 2024.
The new rules apply to cryptocurrencies like Bitcoin and Ethereum as well as stablecoins pegged to fiat currencies. However, after some debate, the board decided that non-fungible tokens (NFTs) and wrapped tokens providing claims on other crypto assets are excluded from the scope.
Most of the commenters told the board that the transition would not involve significant costs or effort, as current processes for voluntary reporting or tax compliance have given them much of the infrastructure needed.
The implementation and adherence to the accounting rules is expected to break the barrier that is believed to have slowed down the adoption of cryptocurrencies in the country, especially among corporate companies, says Microstrategy co-founder and former CEO Michael Saylor.