Oct 13, 2022

FASB Proposes Fair-Value Accounting for Crypto Assets: 3 Takeaways

New guidance would allow companies to recognize gains and losses immediately, a huge win for companies with public reporting requirements

Tactic Team

Good news for businesses holding digital assets: this week the Financial Accounting Standards Board (FASB) unanimously voted that companies following U.S. GAAP (Generally Accepted Accounting Principles) should report most crypto assets at fair value on their balance sheets. 

While these changes are not in effect yet, we can expect a finalization process over the next six months before the FASB issues an official Accounting Standards Update (ASU).

Why is this important?

Reporting digital assets at fair value is a major change, as companies were previously required to treat all crypto as indefinite-lived intangible assets with recorded impairment when the market value of that asset dropped below its carrying value.

If the price subsequently rose, companies couldn’t mark up the value unless they sold their crypto assets, impacting not only net income, but also financial metrics such as working capital, return on assets, and liquidity ratios, which made it difficult to understand the actual financial position of a company.

This guidance requires assets to be fungible, which by definition excludes NFTs which are non-fungible and may carry rights to underlying goods, services or other assets.

With the revised guidance, these companies are now allowed to account for and disclose the true value of their crypto assets in their financials according to market cap price, marking the FASB’s announcement as a major milestone for the crypto industry.

The Tactic Team’s Takeaways

At Tactic, we see a world where one day every company embraces cryptocurrency. We view the FASB’s decision as a big step forward for the industry, lowering barriers to crypto adoption for businesses.

Our takeaways:

  1. Web3 companies will have a better understanding of their financial position since the assets they hold will be reflected more accurately. This will make these companies more investable and empower businesses with good fundamentals to thrive.

  2. Over the past year, we have seen an influx of web2 businesses make the leap into web3, and we expect this ruling will encourage more to do so as crypto holdings will no longer be deadweight on their financial statements.

  3. We are only seeing the tip of the iceberg of regulation in crypto, and businesses with digital assets must be prepared to adapt quickly to increased legislation and compliance measures. 

The information in this article is for general informational purposes only and does not constitute investment, accounting, tax, or legal advice.