According to FASB’s recent announcement, new crypto accounting rules are set to bring big changes to how companies like enterprise software giant MicroStrategy, electric vehicle company Tesla, and payments processor Block report their crypto holdings. FASB has mandated that companies holding Bitcoin, Ethereum, or other cryptocurrencies must now record these assets at their fair market value.
Is Fair Value Helpful In Crypto Accounting?
Under the new guidelines set by the Financial Accounting Standards Board in its inaugural crypto accounting rules, both crypto-focused and other companies with investments in Bitcoin or Ethereum are now required to report these assets using the fair value method. This approach is designed to reflect the most current valuation of these digital currencies. Consequently, any variations in their fair value will be directly reflected in the company’s net income.
Previously, the rules permitted companies to report only the lowest values of their crypto holdings. This approach has been a point of debate, especially for firms heavily invested in Bitcoin, as it resulted in a conservative, often declined portrayal of their assets.
Given the extreme volatility of the crypto market, this often led to a reduction in the reported value of their holdings, negatively impacting their earnings. However, this new rule will now allow to record the highs and lows of the specific asset, which will boost net income.
The implementation of these new rules is scheduled for fiscal years starting after December 15, 2024. This means that companies whose fiscal year aligns with the calendar year will begin applying these rules in 2025. However, there is an option for companies to adopt these new standards earlier than the deadline, should they choose to do so.
In September, the FASB voted for these new rules to draft the final version and it has now been finally approved.
