The Financial Accounting Standards Board said companies would have to disclose details about their major cryptocurrency holdings as part of a new rule proposal that’s expected in the coming months.
The disclosure plan outlined Wednesday marks one of the final steps before a rule is proposed, which—if approved—would fill a gap for companies holding these assets and provide more information to investors.
There are currently no specific accounting or disclosure rules for crypto assets in the U.S. Businesses classify them as indefinite-lived intangible assets, similar to intellectual property such as trademarks. Companies must review the value of such assets at least once a year and write it down if it drops below the purchase price. If the value rises, companies can only record a gain when they sell the asset, but not if they continue holding it.
The FASB, which sets accounting standards for U.S. public and private companies, in recent months took several key decisions on the scope of its crypto project and accounting for crypto assets. In August, it detailed criteria for the assets it will include in the project, leaving out nonfungible 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 had long pushed for this move, as it would allow them to recognize losses and gains immediately, and treat digital assets as financial assets instead of as indefinite-lived intangible assets.
The FASB on Wednesday said it wants public and private companies to highlight in their financial statements the amount of their crypto assets separately from the amount of other intangible assets, such as patents and trademarks. Companies would have to include gains and losses in crypto assets in their net income. That’s separate from any changes in the amounts companies would record on their books for other intangible assets.
The FASB said companies should disclose a table of significant crypto-asset holdings by fair value—essentially the market price—as of the end of each quarterly and annual period. They would give the cost, the fair value and the number of units for each significant crypto asset held. Companies would be required to disclose how they determine the costs associated with crypto assets, for example, as a weighted average based on prices paid for each type of the assets.
U.S. accounting rules don’t define “significant” holdings, so determining which assets to disclose would be down to the companies to decide.
The potential disclosure would require companies to provide the fair value of any restricted crypto assets—typically cryptos that firms at least temporarily can’t sell—in quarterly and annual filings, along with the nature and remaining duration of the restriction, and the circumstances that would lift the restriction. For example, companies could receive payment from customers in the form of crypto assets that are prohibited from sale for three months. Companies would also have to break down any activities involving their crypto holdings, such as additions, dispositions, gains and losses, between the beginning and end of an annual period.
The change in measurement—for example, toward fair value—should result in a different presentation in financial statements for companies, FASB board member Fred Cannon said. “What we’re doing is important in terms of investor views…whether you think this is the future of finance or you think it’s a speculative bubble in the process of popping,” he said. “I think moving to fair value really does allow investors more useful information that’s critical.”
The FASB expects to vote on whether to propose a crypto rule early next year, which would be followed by a proposal sometime in the first half of 2023, a spokeswoman said. It continues to research whether its crypto project should also cover the issuers of the tokens, in addition to holders of the assets.
Auto maker Tesla Inc., payment firm Block Inc. and software provider MicroStrategy Inc. are among the few publicly traded companies with big crypto assets on their balance sheets as of their latest quarter end. These companies disclose information about large crypto holdings, but potentially not the full picture.
Companies also face calls from U.S. regulators for greater disclosure related to crypto. The Securities and Exchange Commission last week said it is asking public companies to detail their exposure to distressed crypto entities in the wake of the collapse of crypto exchange FTX and its affiliates.