FASB establishes disclosure requirements for crypto holding companies ahead of potential proposal

The Financial Accounting Standards Board said companies will have to disclose details of their major cryptocurrency holdings as part of new proposed rules expected in the coming months.

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

There are currently no specific accounting or disclosure rules for crypto assets in the US. Companies classify it as an intangible asset with an indefinite life, similar to intellectual property such as trademarks. Companies must review the value of such assets at least once a year and write them down if they fall below their purchase price. If the value rises, companies can only record a gain when they sell the asset, but not if they continue to hold it.

The FASB, which sets accounting standards for US public and private companies, has made several key decisions in recent months about the scope of its crypto project and accounting for crypto assets. In August, he detailed the criteria for the assets he would include in the project, leaving out non-fungible tokens and certain stablecoins. Then in October, it said companies should use fair value accounting to measure bitcoin and other crypto assets. Companies and accountants have long championed the move, as it would allow them to recognize losses and gains immediately and treat digital assets as financial assets instead of indefinite-lived intangible assets.

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

The FASB said companies should publish a table of significant holdings of crypto assets at fair value — essentially 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 they hold. Companies would be required to disclose how they determine the 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 “significant” holdings, so it would be up to companies to decide which assets to disclose.

The potential disclosure would require firms to provide the fair value of any restricted crypto assets—typically crypto assets that firms cannot sell at least temporarily—in quarterly and annual filings, along with the nature and remaining duration of the restriction and the circumstances under which it would lift the restriction. For example, companies could receive payment from customers in the form of crypto-assets that are banned from sale for three months. Companies would also have to break down all activities involving their crypto holdings, such as additions, disposals, gains and losses, between the beginning and end of the annual period.

A change in measurement — for example, to fair value — should result in a different presentation in financial statements for companies, said FASB board member Fred Cannon. “What we’re doing is important in terms of an investor’s view … do you think this is the future of finance or do you think it’s a speculative bubble in the process of bursting,” he said. “I think the move to fair value really gives investors more useful information that’s key.”

The FASB expects to vote on whether to propose a crypto rule early next year, followed by a proposal sometime in the first half of 2023, the spokeswoman said. He continues to explore whether his crypto project should cover token issuers in addition to asset owners.

Car manufacturer Tesla Inch.,

payment company Blok Inch.

and software vendor MicroStrategy Inch.

are among the few publicly traded companies with large crypto assets on their balance sheets at the end of the most recent quarter. These companies reveal information about large crypto holdings, but potentially not the full picture.

The companies are also facing calls from US regulators for greater disclosure related to cryptocurrencies. The Securities and Exchange Commission said last week that it is asking public companies to provide details of their exposure to distressed crypto entities following the collapse of crypto exchange FTX and its subsidiaries.

Email Mark Maurer at [email protected]

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