A significant transformation related to the accounting of cryptocurrencies, particularly bitcoin, could potentially encourage more businesses to accept digital currencies as part of their assets. Currently, accounting regulations only permit firms to record increases in their digital assets’ value only when they are sold and losses at least annually. However, the Financial Accounting Standards Board (FASB) has chosen to adopt a more fluid approach, utilizing fair-value accounting which allows the immediate reflection of both gains and losses in their income statements.
Analysts from Stifel describe this transformation as a “significant development.” They draw attention to how present rules of Generally Accepted Accounting Principles (GAAP) in the U.S compel companies to record a drop in the value of their crypto assets when prices drop, yet they cannot reverse these written-down values even if prices rally. Essentially, this means that their balance sheet values for their assets could be significantly lower than their actual market value.
The analysts further opined that these changes could potentially lead to more U.S-based businesses being open to maintaining digital assets on their books, particularly in bullish market conditions, thanks to the beneficial impact on their bottom line.
MicroStrategy’s executive chairman, Michael Saylor, who has been increasing his company’s bitcoin holding over the past three years, enthusiastically hailed the new rules as a crucial step in eliminating the barriers to the acceptance of bitcoin as a treasured corporate asset.
However, the willingness of businesses to adopt cryptocurrencies isn’t without hesitation. The primary concern stems from the risk aversion among the executive ranks, who are entrusted to prudently manage their reserves and deliver somewhat predictable gains. Critics such as ex-hedge fund manager, James Lavish, point out that for these top executives, the stakes are simply too high for them to replace traditional assets like cash or U.S Treasury bonds with a volatile asset like bitcoin.
The FASB is expected to approve the final language later this year, opening the doors for businesses to adopt the new standards. By 2025, switchover to these new regulations will become mandatory. The question remains, though, whether businesses are ready to embrace this grand shift in accounting, given the significant risks associated with crypto-assets. Only time will tell.
Source: Coindesk
