Financial Accounting Standards Board implemented the Fair Value Accounting rule for Cryptocurrency, which will be effective on December 15, 2024.
The update is designed to close the gaps in accounting and disclosure for cryptocurrency while increasing transparency of financial reporting.
Companies must now measure the fair market value of their crypto assets and then update this valuation every time they report. This new change allows companies to show gains and losses resulting from changes in the market value on their financial reports.
Digital assets, such as Bitcoin, were previously classified under intangible assets with a short-term life. This allowed businesses to depreciate assets, but prevented them from reporting any gains until they were sold.
In addition, firms must disclose information about their significant holdings as well as any changes that occurred during the period covered by the report.
However, this rule only applies to digital assets that are fungible such as Bitcoins and Ethereum. The nonfungible tokens are not included due to difficulties in estimating the value because of their unique features and their non-interchangeability.
Market implication
Crypto community has largely welcomed these regulatory improvements. The increased transparency and standard reporting are seen by many as a way to mainstream Bitcoin, and increase institutional adoption worldwide.
This shift, they say, marks a pivotal moment in the accounting of cryptocurrencies by businesses. By reflecting real-time market values, financial statements will now present a more accurate picture of a company’s financial health. The risks associated with cryptocurrency, as well as the cash flow and performance, will be better understood by stakeholders.
Thomas Jeegers, a financial analyst at Thomas Jeegers & Co. explained how the new rule simplifies the business by removing the requirement for impairment tests. This simplified approach might encourage more businesses to consider Bitcoin as an asset of strategic value, particularly now that its accounting standards match its economic worth.
Similarly, Bill Barhydt, CEO of crypto platform Abra, celebrated the move while stating that it paves the way for institutions in the S&P 500 to hold Bitcoin without permanent markdowns.
Bill Hughes, director of global regulatory matters at Consensys echoed the sentiment and called it a milestone in broader adoption.
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