The Financial Accounting Standard Board’s proposal to make fair value the primary accounting method for measuring certain crypto assets netted substantial support — along with some critiques and calls for an expanded scope to include more types of assets — during the public comment period that ended Tuesday with feedback and letters filed by 78 stakeholders.
That a number of large crypto industry players voiced general support was not altogether surprising given that many in the industry, like the digital asset manager Grayscale Investments, have been calling for the change, as CFO Dive previously reported.
Crypto companies as well as financial report preparers have been critical of the current practice, which generally treats cryptocurrency as an intangible asset and have advocated for the change. Current guidance has generally been interpreted to mean that crypto assets should be impaired to the lowest observable value within a reporting period.
The proposed fair value accounting method in theory could also be more attractive to firms as well as simpler, because a company would report the value of the asset based on its level on a given exchange at the end of the reporting period, rather than having to follow the ups and downs of an asset’s value through a reporting period to report the lowest level.
But the letters of support were in contrast with the history of tension between the young industry and regulators that was underscored this week by separate suits filed by the Securities and Exchange Commission against crypto firm Binance and cryptocurrency trading platform Coinbase.
Many of the crypto respondents viewed the plan from FASB as a good — though narrowly targeted — start toward more guidance but noted that the growing industry would ultimately need the guidance to be expanded to other assets and issues.
In August, the FASB narrowed the scope of its crypto guidance product to exclude non-fungible tokens, also known as NFTs. FASB decided that the cryptocurrencies that they would address must comply with the generally accepted accounting principles definition of an intangible asset; they cannot provide the asset holder with enforceable rights to underlying goods, services, or other assets; they must be created or reside on a distributed ledger or blockchain and they must be secured through cryptography and they must be fungible.
“Although we wholly support the proposed guidance in the [exposure draft], we consider this to be the first in a phased approach to address accounting for digital assets, including crypto assets,” Natalia Voronina, chief accounting officer at San Francisco-based crypto exchange Kraken, wrote in a May 25 letter, characterizing the proposed guidance as “appropriate” and “operational” but asserting that there is still an “urgent need” for additional guidance on stablecoins, wrapped tokens and NFTs.
Michael Saylor’s MicroStrategy, one of the world’s biggest bitcoin owners, also said it agreed with the FASB’s “purposefully” narrow scope criteria in order to make the standard setting process move faster.
“There may be various complexities associated with non-fungible or wrapped tokens, etc., and prolonging the standard setting process to address the treatment of other digital assets, which are not as widely held, would delay the introduction of much needed accounting standards for entities that hold the most widely held digital assets for a comparatively small benefit,” wrote Andrew Kang, MicroStrategy’s CFO in a May 22 comment letter.
Grayscale, along with crypto-exchange operator Coinbase, were some of the industry companies that lent top line support to the U.S. accounting standard setter’s proposal.