- The FASB said that the fair value accounting system will bring greater transparency for companies and accountants to disclose their crypto holdings.
- MicroStrategy chief Michael Saylor said that this measure will boost the institutional adoption of Bitcoin.
Regulatory measures for the functioning of crypto assets have been under discussion and seek to provide greater clarity to investors. On Wednesday, October 12, the Financial Accounting Standards Board (FASB) made a breakthrough announcement on the accounting of crypto assets.
The FASB noted that companies should use fair-value accounting for measuring Bitcoin and other digital assets. This step could clear up the uncertainty on reporting how much such holdings are worth.
Currently, there are no specific accounting or disclosure rules for digital assets. As a result, businesses classify them as indefinite-lived intangible assets. Since crypto assets are extremely volatile, accounting in such cases becomes extremely difficult.
So companies and accountants want the FASB to adopt a fair-value accounting system. This would allow them to identify the gains and losses immediately and treat digital assets as financial assets. On Wednesday, the FASB said that a fair value accounting system will help to best capture the economics of digital assets, FASB board member Gary Buesser said:
We’ve heard from investors that they want transparency through disclosure, and the only way to get to that is fair value. The only way to get any kind of real information on the holding of bitcoin or Ethereum is through fair value.
Boosting Institutional Crypto Adoption
The recent commentary by FASB on fair value accounting of crypto assets has been acknowledged by crypto industry veterans. Speaking on the development, Bitcoin evangelist and MicroStrategy founder Michael Saylor said:
This is a major milestone on the road to institutional #bitcoin adoption.
For years companies have been asking the FASB to come up with clear rules for disclosing their crypto holdings. Now, as per the fair value accounting system, businesses will have to prepare financial statements in a way that doesn’t accurately reflect the results of their operations or financial condition, said Phong Lee, Chief Executive Officer at MicroStrategy. During his comment letter to the FASB last year, Le stated:
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We expect the disconnect between the reported carrying value on our balance sheet and the fair market value of our bitcoin holdings to grow significantly over time.
He said that the volatile nature of Bitcoin makes it difficult for the company to adjust for future increases in value. After deciding about the fair value system, the FASB board will next consider what shall be included in disclosures regarding the crypto assets and how companies should inform investors.