A Financial Accounting Standards Board meeting on Wednesday will decide whether the board should add a project on accounting for digital currencies to its technical agenda this year and, if so, what the project’s scope should be.
Since 2017, FASB has received three agenda requests to add such a project. Calls for examining how cryptocurrencies are treated under generally accepted accounting principles (GAAP) have accelerated as digital currencies like bitcoin show up in more public companies’ accounts.
Because digital currencies do not meet the definition of cash, inventory, or financial assets in current accounting guidance, they must be treated as indefinite-lived intangible assets. Accounting for such intangibles uses a cost and impairment model, so the value of cryptocurrencies has to be tested for impairment. But the model does not allow for the asset to be written up, only down.
Industry players say the current GAAP accounting practice only leads to an understatement of cryptocurrency assets and prohibits a business from showing the true value of its crypto assets under possession on its financial statements.
In addition, classifying these currencies as intangible assets does not faithfully represent the economic nature of digital currencies because the currencies generally have actively traded markets, critics say. One agenda request suggested that FASB develop new guidance that lets digital currencies be measured at fair value with changes in value recognized in earnings.
The International Accounting Standards Board has taken the same stance as FASB’s, except that it has said guidance on inventories applies to cryptocurrencies held for sale in the ordinary course of business.
FASB pointed to the Accounting Standards Board of Japan’s standard as an alternate method in its board meeting handout.
The ASBJ’s proposed solution for cryptocurrency accounting is to allow for such currencies to be measured at (a) market price at the balance sheet date if an active market exists or (b) the lower of cost or estimated disposal value if there is no active market. Changes in the carrying amount, the ASBJ has said, would be recognized as a gain or loss if there is an active market.
FASB will address four other potential projects in Wednesday’s meeting: Disclosure and Cash Flow Statement Presentation of Supplier Finance Programs Involving Trade Payables, Evaluating Whether a For-Profit Entity Has a Controlling Financial Interest in a Not-ForProfit Entity, Change to Diluted Earnings Per Share (EPS) Reporting, and Determining a Lessee’s Discount Rate: When Use of the Rate Implicit in a Lease Is Required.
The potential supplier finance program project would address the sometimes lack of transparency about a reporting entity’s use of supplier finance programs and the diversity in practice around those programs’ cash-flow statement presentation.
The diluted EPS reporting project would address the different ways issuers reconcile the diluted EPS measure under GAAP to the fully diluted non-GAAP EPS measure in their earnings reports. An agenda request to FASB recommended that it consider requiring a new diluted EPS measure called “fully diluted after-tax operating EPS,” and include a reconciliation between this new measure and the diluted EPS measure currently reported under GAAP.