FASB guidelines could ‘smooth the way’ for broader crypto adoption

Regulation

The United States Financial Accounting Standards Board (FASB)’s decision to allow companies to use “fair value” to account for their crypto holdings could be seen as another step toward the wider institutional adoption of cryptocurrency. 

During a meeting on Oct. 12, the FASB board made the decision to require entities to measure crypto assets at “fair value.”

The board’s decision is “tentative” at this stage, and could be changed at future board meetings when they continue to weigh their options.

The decision, if approved, will allow companies to update their balance sheets regularly with the fair value of crypto assets rather than referring to digital assets such as Bitcoin (BTC) as “intangible assets,” where companies were required to measure assets at their lowest price during a reporting period.

The previous treatment of digital assets resulted in large impairment losses on balance sheets even if their positions were currently in the green, with firms being unable to regularly update the value of their holdings if the value were to increase.

Anthony Tuths, principal of KPMG’s Alternative Investment Tax practice said the guidance could be bullish for broader mainstream crypto adoption, adding it is likely to go into effect in 2023.

“FASB has just cleared the way for new accounting guidance which will allow most cryptocurrencies to be accounted for at fair value. When this guidance goes into effect (likely in 2023) it will greatly help smooth the way for broader mainstream adoption.”

Tuths added that not all digital assets would qualify for the new accounting treatment however, with NFTs, asset backed tokens, and similar tokens still subject to the previous guidelines.

Crypto tax firm CoinLedger’s director of strategy Miles Brooks said the new FASB decision is “long overdue.”

The U.S. standard-setter had declined to consider new accounting rules for crypto until May. 11, when board members decided to add the project to its technical agenda after an increase in market capitalization of crypto assets made the matter more urgent.

Brooks continued to say the new FASB standards will allow companies to more accurately report their current crypto holdings within their financial statements.

Related: Colorado is accepting crypto for tax payments — it could be a mess or a shining example

Companies and investors have been seeking clarity on the accounting standards for crypto for years, for example the California Society of Certified Public Accountants (CalCPA) urged the FASB to treat crypto more like foreign currency all the way back in 2019.