FASB Approves A Fix For Fair Crypto Value

At a meeting on Wednesday, the Financial Accounting Standards Board (FASB) adopted a tentative agreement to make fair value the primary accounting technique for evaluating crypto assets.

According to meeting materials, the move comes after the FASB heard from an "overwhelming majority" of stakeholders who favored a shift to fair value from the current practice, which has generally been interpreted to mean that crypto assets "should be impaired to the lowest observable fair value within a reporting period."

“Given how these assets generate huge cash flows and the type of cash flows they generate, I feel strongly that fair value is the relevant measurement basis, it’s the right measurement basis, and it better captures the economics of this type of asset,” Christine Ann Botosan, a board member, stated on a YouTube video of the meeting.

The board's decision on Wednesday comes at a particularly difficult moment for cryptocurrency investors and companies. As of Thursday morning, the Nasdaq Crypto Index has lost 63% to approximately 1,09SU this year to date, beating the drop in the S&P 500, which had been down 26% to about 3543 in the same period.

Since reversing its plan to prioritize cryptocurrency in May, the FASB looks to be gaining traction in discussing the hot topic. FASB reduced the scope of the assets it will address in August, excluding nonfungible tokens (NFTs).

This week's decision is a significant step toward providing stakeholders with an explanation and a "quick fix" to the extremely limited fair value concern. Many stakeholders have criticized current accounting practices that treat cryptocurrencies as intangible assets rather than allowing them to be held at fair value.

That is, under that system, a company that owns bitcoin or another digital asset that loses value shows that loss in its reports but does not do so if the value rises.

Grayscale Investments CFO Ed McGee was among those calling for the adjustment, stating that he wanted the FASB to provide a stopgap quick fix by accepting the fair value utilization method before taking up the more complex issues of crypto accounting.

The FASB should “allow corporate enterprises to elect fair value. I think that would solve a lot and would not require as much time and effort from a FASB perspective,” In May, he have spoken with CFO Dive.

The board unanimously adopted the fair value strategy at its meeting on Wednesday, rejecting two options suggested by company staff, such as a historical cost approach with simplified impairment and a net realizable value approach (NRV).

According to a KPMG study released on Wednesday, the board appears to be developing guidelines primarily for digital assets such as bitcoin and ether. However, they are also meant to capture a wide range of lesser-known digital currencies.

The board also pushed back at the meeting against the guidance being an alternative rather than a requirement, as well as against the difference in the guidance provided to private companies. The board was also concerned about the impact of cryptocurrency on investors and referred to the decrease in cryptocurrency value.

“At the end of the day there’s a broad range of these assets, different levels of liquidity but highly volatile speculative, thinly-traded assets that have certain attributes to them…but people hopefully go in with their eyes wide open and understand what they have,” according to FASB Chair Richard Jones.

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