Shalini Nagarajan

The Financial Accounting Standards Board on Wednesday unanimously approved new rules for valuing crypto assets in company financial statements.



Members of the board approved a standard mandating that companies use fair value accounting for bitcoin and some other crypto assets.&nbsp;



This approach aims to reflect the crypto asset&#8217;s current market value, even if it has recently fluctuated. <a href="https://blockworks.co/news/industry-weighs-crypto-asset-reporting">Some companies</a> wanted exactly this to happen.



Both public and private companies will be required to separately disclose their crypto assets in their financial reports, whether they are quarterly or annual.&nbsp;



These assets can no longer be grouped with intangible assets like patents and trademarks.



Additionally, businesses must account for gains and losses on their crypto assets within their net income.



The FASB aims to improve financial reporting standards and offers guidelines for both public and private companies when crafting their financial statements.



It has sought to create new accounting rules for crypto assets because the existing treatment, which categorizes them as indefinite-lived intangible assets like trademarks, does not provide investors with useful information for making decisions.



&#8220;I think in my brief term here, there hasn&#8217;t been an issue that has excited such passion from people,&#8221; FASB Chairman Richard Jones said during the <a href="https://www.youtube.com/watch?v=kJrm0jxQypM">meeting</a>.&nbsp;



&#8220;I think we heard overwhelmingly from investors that allocate capital based on the use of financial statements that this will provide them better information to make their decisions, and so I&#8217;m fully supportive of it,&#8221; he said.



The board <a href="https://blockworks.co/news/crypto-fasb-accounting-standards">initiated a feedback process</a> in May to consider potential revisions to the reporting methods for companies&#8217; cryptocurrency holdings.&nbsp;



This came as corporations like Tesla and MicroStrategy have traditionally disclosed the value of their crypto assets annually, marking them down as impairment charges whenever their value dipped below the acquisition cost.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Fair value accounting is coming to <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a>. This upgrade to FASB accounting rules eliminates a major impediment to corporate adoption of <a href="https://twitter.com/search?q=%24BTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BTC</a> as a treasury asset.<a href="https://t.co/MjVzUJRVjX">https://t.co/MjVzUJRVjX</a>&mdash; Michael Saylor⚡️ (@saylor) <a href="https://twitter.com/saylor/status/1699475603525624055?ref_src=twsrc%5Etfw">September 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Following an <a href="https://www.fasb.org/page/showpdf?path=CRYPTO-BMHO-20230906.pdf&amp;title=May%2017,%202023%20Board%20Meeting%20Handout">assessment of the feedback</a>, the board greenlighted the creation of a finalized version of this new accounting standard.&nbsp;



The final version of the standard is anticipated to receive official approval by the close of this year.



According to industry observers, a crypto-specific accounting standard could ease companies&#8217; fears of impairment charges from market volatility.



Berenberg analyst Mark Palmer said on Wednesday that the updated rules should assist MicroStrategy and others holding digital assets in dispelling the negative perception generated by impairment losses under the existing FASB guidelines.



Palmer pointed out that since adopting its bitcoin strategy in August 2020, MicroStrategy has reported $2.2 billion in impairment losses. He added that a major loss of $917.8 million in the second quarter of 2022 skewed public perception, suggesting the company&#8217;s value has been negatively impacted.



Implementation of the new standard is set to take effect for annual reports beginning in 2025, although earlier adoption is allowed.



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accounting

New US accounting standard for crypto to be finalized by year-end

The Financial Accounting Standards Board (FASB) is gathering feedback on long-awaited proposed changes to how companies report crypto holdings.



The proposals mark the first attempt to establish guidelines on how US companies should disclose their crypto.



The FASB — sanctioned by the US Securities and Exchange Commission — is responsible for enhancing financial reporting standards and providing guidance to both public and private companies in the preparation of their financial statements.



In March, the board introduced a <a href="https://www.fasb.org/document/blob?fileName=Prop%20ASU%E2%80%94Intangibles%E2%80%94Goodwill%20and%20Other%E2%80%94Crypto%20Assets%20(Subtopic%20350-60)%E2%80%94Accounting%20for%20and%20Disclosure%20of%20Crypto%20Assets.pdf" target="_blank" rel="noreferrer noopener">proposal</a> to account for crypto assets at fair value, with any changes recognized in net income during each reporting period. It will be inviting comments on this proposal until June 6.&nbsp;



According to the FASB, the existing accounting treatment of crypto as <a href="https://www.sec.gov/Archives/edgar/data/1116521/000119312511336630/R13.htm#:~:text=Intangible%20assets%20determined%20to%20have,to%20generate%20cash%20flows%20indefinitely." target="_blank" rel="noreferrer noopener">indefinite-lived</a> intangible assets fails to offer investors informative data for decision-making purposes. 



The SEC defines intangible assets to include &#8220;acquired technology, customer relationships, trademarks and trade-names,&#8221; which don&#8217;t exactly align with the function of major cryptocurrencies like bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether (<a href="https://blockworks.co/price/eth">ETH</a>).



As a result, companies must evaluate the worth of their crypto on an annual basis and make a downward adjustment if the value falls below the purchase price — commonly reported as impairment charges, such as the ones posted by <a href="https://blockworks.co/news/tesla-sells-bitcoin-for-profit-still-posts-impairment-loss" target="_blank" rel="noreferrer noopener">Tesla</a> and <a href="https://blockworks.co/news/microstrategy-nearly-even-on-bitcoin" target="_blank" rel="noreferrer noopener">MicroStrategy</a>.



If the value of their crypto rises, companies can only recognize a gain when they sell the asset, rather than during the holding period.



The FASB’s new proposal aims to address long-standing demand from companies and accountants, aligning with the industry’s desire for a more consistent approach.&nbsp;



The hope is that an official accounting standard for crypto would lead more public companies to hold digital assets on their balance sheets, without fear of impairment charges due to short-term market volatility.



Aaron Jacob, who leads the accounting solutions team at crypto tax compliance firm TaxBit, <a href="https://www.accountingtoday.com/news/fasb-weighs-feedback-on-crypto-asset-standard#:~:text=A%20crypto%20accounting%20standard%20is,top%20priority%20for%20the%20board." target="_blank" rel="noreferrer noopener">told</a> trade magazine Accounting Today the current accounting treatment for crypto in the US has been a major challenge for the industry.&nbsp;



Under the current approach, crypto is recorded on balance sheets based on their historical cost, with additional adjustments made for impairment charges. 



<h2 class="wp-block-heading">Accounting board sees solid support for crypto</h2>



According to Jacob — who expects the rules to be finalized within the year — the stakeholder community expressed a strong need for addressing crypto during the agenda consultation.&nbsp;



The FASB even renamed the standards project after receiving feedback, replacing the term “digital assets” with “crypto assets.”



Stakeholders reportedly expressed concerns about recognizing valuation decreases, but not increases. This approach was deemed inadequate in reflecting the underlying economics of the assets and an entity’s financial positions.



Some investors separately requested more detailed disclosures regarding the type of crypto assets held by entities and any changes in those holdings.



The FASB is reportedly proposing two other major accounting rule changes beyond fair value measurement for crypto assets.



<ul class="wp-block-list">
<li>Fair value changes: The board decided value fluctuations should impact company earnings, to be reflected in the income statement through metrics like earnings per share and net income.</li>



<li>Financial statement disclosures: Companies would be obligated to disclose significant holdings of crypto assets, their historical cost basis and fair value.&nbsp;</li>
</ul>



Companies would also need to provide an annual reconciliation or roll-forward of their crypto asset activity. Disclosure of any restricted assets will also be required.



About 40 publicly-traded companies currently hold bitcoin on their balance sheets, including Microstrategy, Tesla, Coinbase and Block (formerly Square), according to <a href="https://bitcointreasuries.net/" target="_blank" rel="noreferrer noopener">Bitcoin Treasuries</a>. A smaller number hold ether.



A FASB spokesperson told Blockworks that once the comment period has concluded, the board&#8217;s staff will analyze and summarize all feedback received.



&#8220;The staff will then present its summary/analysis to the Board at a future public meeting. The Board will discuss that feedback at its public meeting(s) and then decide whether to vote to move ahead with issuing a final standard, or whether changes or tweaks need to be made to the proposal before issuing it as final.&#8221;



Updated May 17, 2023 at 8:27 am ET: Added quote.



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No More Impairment Charges: FASB Weighs Crypto Accounting Standards

Marathon Digital was set to report financial results for the fourth quarter on Tuesday but postponed its earnings release. The crypto miner is set to recast some figures after the US securities regulator flagged inaccuracies.



The Las Vegas, Nevada-based company received a letter from the Securities and Exchange Commission’s corporation finance staff on Feb. 22 that picked out some accounting errors, according to a <a href="https://www.sec.gov/Archives/edgar/data/1507605/000149315223006169/form8-k.htm" target="_blank" rel="noreferrer noopener">filing</a> published Tuesday.&nbsp;



The issues raised in the letter included the calculation of impairment of digital assets and its determination of revenue from contracts with customers. Impairment refers to how a digital asset is recorded when its price dips below its initial purchase price.



<a href="https://blockworks.co/tag/marathon-digital">Marathon</a> said it recently determined its prior assessment that it acted as an agent in operating a third-party mining pool was incorrect, and concluded that it was acting as a principal instead.&nbsp; Portions of its financial statements in 2021 and as-yet unaudited quarterly reports for 2022 should not be relied upon, it added.



“The company estimates that both its revenues and its cost of revenues for the year ended December 31, 2021 were understated due to the ‘net’ vs. ‘gross’ presentation of revenues in its financial statements,” it said.



A number of figures are expected to change as a result of the restatement, including revenue, cost of revenue, energy and hosting.



The restatement is not expected to have an impact on total margin, operating income or net income in 2021 or 2022.



Marathon said because of the SEC’s letter, the company will be unable to file and make corrections to its 2022 annual report on Form 10-K by its March 1 deadline. However, it expects to file within 15 days of this deadline.



Marathon Digital’s stock is down nearly 70% in the last 12 months, but has risen over 17% in the last three months. It ended Tuesday trading <a href="https://finance.yahoo.com/quote/MARA/" target="_blank" rel="noreferrer noopener">roughly flat</a> at $7.10 per share on the Nasdaq.



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Marathon Digital to Correct Earnings Figures After SEC Letter

Ben Strack

<div id="highlights-block_6201490781b67" class="highlights">
 <ul>
 <li>KPMG in Canada is bullish on cryptoassets and could consider investments beyond BTC and ETH in the future, executive says</li>
 <li>The firm is educating institutions about the metaverse, NFTs and Decentralized Autonomous Organizations (DAOs)</li>
 </ul>
 
</div>



The Canadian arm of accounting giant KPMG International has joined a growing list of companies adding crypto to corporate treasury accounts.



The Toronto-based company, which offers ​​consulting, accounting, auditing and tax services, has added bitcoin and ether to its corporate treasury, the company said Monday.



KPMG International, a global network of firms headquartered in the Netherlands, reported roughly $32 billion in revenue for its 2021 fiscal year. The latest crypto investment was made by KPMG in Canada.



Since Michael Saylor’s MicroStrategy <a href="https://cms.blockworks.co/microstrategy-buys-1900-more-bitcoins/" target="_blank" rel="noreferrer noopener">added</a> bitcoin to its balance sheet, dozens of companies have followed suit in what industry participants view as a growth area for the space.



The assets were acquired through Gemini Trust Company’s execution and custody services. KPMG formed a governance committee to review the regulatory, reputational and custodial risks before approving the treasury allocation.



The company declined to disclose the amount of BTC and ETH purchased.



Kareem Sadek, a partner and advisory and risk consulting blockchain leader for KPMG Canada, told Blockworks the company is taking a “prudent” approach to the space and has so far only considered buying bitcoin and ether.



“This is one of the many initiatives in the cryptoasset space that we&#8217;re looking at,” Sadek said. “KPMG in Canada is bullish on cryptoassets. We believe they are here to stay, and we’ll consider other innovative investment opportunities in the future.”



Benjie Thomas, Canadian managing partner of advisory services for KPMG in Canada, said that hedge funds, family offices, insurers and pension funds are increasingly snapping up crypto.



Others, such as banks, financial advisors and brokerages, he added, are exploring the space, as well.



About 90% of institutions interested in crypto expect to allocate to the space by 2026, according to a <a href="https://cms.blockworks.co/fidelity-exec-fairly-long-tail-of-institutions-driving-mainstream-crypto-adoption/" target="_blank" rel="noreferrer noopener">recent Fidelity study</a>.



Next, KPMG Canada is looking to enable institutional participation in Web3, Sadek told Blockworks, with a focus on the metaverse, NFTs and Decentralized Autonomous Organizations (DAOs).



The firm offers crypto-related services when it comes to taxes, accounting and legal matters.



“Our DeFi workshops now include live demos of multiple applications, which inform how institutions can engage with applications and manage the associated risks,” Sadek said. “Being a multi-faceted professional services firm, we are uniquely positioned to engage with our clients in these workshops to share our insights that form the foundation of our support when helping in developing their strategy, roadmap and even proof-of-concepts.”



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