Crypto Accounting Plan Faces Decision on How to Record Swings

US accounting rulemakers have taken a critical step toward requiring companies to record their cryptocurrency holdings at fair value. Now they have to figure out exactly how to do so.

The Financial Accounting Standards Board faces a choice, FASB member Frederick Cannon said Thursday. It could allow swings in the value of Bitcoin and Ether to directly hit earnings by having them recorded through a company’s net income, he noted, or it could allow companies to record gains and losses in “other comprehensive income,” which doesn’t hit earnings,

“My bias is just to push it through income and make it simple,” Cannon said at a securities industry accounting conference. “But that’s just me.”

In other comprehensive income, companies record unrealized gains or losses, such as swings in the value of foreign currencies or securities they plan to sell.

• Recording crypto fluctuations in this line item could align FASB with international standards, Cannon said. The International Accounting Standards Board has rejected calls to address crypto accounting, with its board chief saying certain transactions already can be recorded at fair value under international rules. The rules require, however, that changes in value get recorded through other comprehensive income, Cannon said.
• No US accounting rules specifically spell out how companies recognize and measure their digital currencies. Guidance from the American Institute of CPAs calls for treating them as intangible assets. So companies like MicroStrategy Inc. and Tesla Inc. that invest in Bitcoin report cryptoassets at the prices they paid and mark them down permanently if their value decreases during a period. Cryptocurrency fluctuatations often result in companies slashing the value of their holdings; they only get to record gains if they sell them at a profit.
• FASB will discuss the cryptocurrency project in December, a spokesperson said.