New guidance would allow companies to recognize gains and losses immediately, a huge win for companies with public reporting requirementsTactic 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).
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.
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.
The information in this article is for general informational purposes only and does not constitute investment, accounting, tax, or legal advice.