FASB establishes disclosure requirements for crypto holdings of companies ahead of a potential proposal

The Financial Accounting Standards Board said companies are expected to disclose details about their major cryptocurrency holdings as part of a new proposed rule expected in the coming months.

The disclosure plan outlined Wednesday marks one of the final steps before a rule is proposed that, if approved, would fill a gap for companies that own these assets and provide more information to investors.

There are currently no specific accounting or disclosure rules for crypto assets in the United States. Companies classify them as intangible assets with an indefinite life, similar to intellectual property such as brands. Companies must review the value of such assets at least annually and devalue it if it falls below the purchase price. If the value goes up, companies can only make a profit when they sell the asset, but not if they continue to hold it.

The FASB, which sets the accounting standards for U.S. public and private companies, has made several key decisions in recent months regarding the scope of its crypto project and the accounting of cryptographic assets. In August, it detailed the criteria for the assets it will include in the project, leaving out non-fungible tokens and some stablecoins. Then, in October, he said companies should use fair value accounting to measure bitcoin and other crypto assets. Businesses and accountants had long pushed for this move, as it would allow them to instantly recognize losses and gains and treat digital assets as financial assets rather than intangible assets with an indefinite life.

The FASB said on Wednesday it wants public and private companies to disclose in their financial statements the amount of their crypto assets separately from the amount of other intangible assets, such as patents and trademarks. Companies should include cryptocurrency gains and losses in their net income. This is separate from any changes in the amounts companies would record on their books for other intangible assets.

The FASB said companies should publish a table of significant cryptocurrency holdings based on fair value, essentially the market price, at the end of each quarterly and annual period. They would provide the cost, fair value, and number of units for each significant crypto asset held. Firms would be required to disclose how they determine costs associated with crypto assets, for example, as a weighted average based on the prices paid for each type of asset.

US accounting rules do not define holdings as “significant,” so determining which assets to disclose would be up to the companies to decide.

The potential disclosure would require firms to provide the fair value of any restricted crypto assets, typically cryptocurrencies that firms are at least temporarily barred from selling, in quarterly and annual filings, along with the nature and remaining duration of the restriction and the circumstances surrounding it. would remove the restriction. For example, businesses could receive payments from customers in the form of cryptocurrencies that are banned from sale for three months. Firms should also spread out any activity involving their cryptocurrency holdings, such as additions, dispositions, gains and losses, between the start and end of an annual period.

The change in measurement, for example towards fair value, should result in a different presentation on companies’ financial statements, said FASB board member Fred Cannon. “What we’re doing matters in terms of investor views … whether you think this is the future of finance or you think it’s a bubble about to burst,” he said. “I think the move to fair value really allows investors to get more useful insights that are critical.”

The FASB plans to vote on whether to propose a cryptocurrency rule early next year, which would be followed by a proposal in the first half of 2023, a spokesperson said. He continues to research whether his crypto project should also cover the issuers of the tokens, in addition to the holders of the assets.

Car manufacturer Tesla Inc.,

Block payment company Inc.

and software vendor MicroStrategy Inc.

they are among the few publicly traded companies with large crypto assets on their balance sheets as of the end of the last quarter. These companies disclose information about large cryptocurrency holdings, but potentially not the full picture.

Firms are also facing calls from US regulators for increased disclosure related to cryptocurrencies. The Securities and Exchange Commission said last week that it is asking public companies to detail their exposure to troubled crypto entities following the collapse of cryptocurrency exchange FTX and its affiliates.

Write to Mark Maurer at [email protected]

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