US FASB Updates Crypto Regulation Allowing Firms to Use Fair-Value Accounting

Table of Contents

• Companies May Now Recognise Fair Value Changes
• Cost Reducing Standards

The US Financial Accounting Standards Board (FASB) published revised rules stating that crypto assets will be represented at their fair value in accounting beginning in late 2024. 

The FASB, the US accounting standards board, published new standards improving the disclosure of certain crypto assets. According to the new standards, corporations may recognize “fair value” changes in crypto holdings. 

Companies May Now Recognise Fair Value Changes

The FASB details how companies report their assets on their balance sheets and will now allow crypto companies and institutions holding crypto to record the value of their assets more realistically. 

According to the current standards, crypto is recognised as an indefinite-lived intangible asset subject to impairment. The implication is the value of crypto assets is decreased on balance sheets if they lose value in an accounting period. The recorded value also cannot be increased until the assets are sold, even if the value of the crypto assets increases before then. The previous standards are a disadvantage in the volatile crypto market as they may make a company’s assets appear less valuable than their market value. 

In its update, the FASB said:

“Accounting for only the decreases, but not the increases, in the value of crypto assets in the financial statements until they are sold does not provide relevant information that reflects (1) the underlying economics of those assets and (2) an entity’s financial position.” 

The FASB’s updated accounting standards now measure crypto assets’ fair value in each accounting period and will accordingly reflect so on the company’s books. 

The new standards take effect for fiscal years beginning after December 15, 2024. Companies may, however, adopt them earlier for financial statements that have not been issued yet. 

Cost Reducing Standards

The new rules are likely to reduce costs for companies. According to the new guidelines:

“In addition to better reflecting the economics of crypto assets, measuring those assets at fair value will likely reduce cost and complexity associated with applying the current cost-less-impairment accounting model for many entities.” 

Earlier in the year, MicroStrategy voiced its support for the proposal. MicroStrategy is well-known for its significant Bitcoin holdings and purchased $600 million in Bitcoin in November. The company said:

“Reporting crypto asset holdings under a fair value model, as proposed by the FASB, would enable us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings, which in turn would facilitate the ability of investors to make informed investment and capital allocation decisions.”

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.