FASB Cryptocurrency Updates 2022

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Cryptocurrency tax is the talk of the town now. The IRS (Internal Revenue Service) has taken notice of it. The CRA (Canada Revenue Agency) is coming up with new rules for crypto taxes every day.

The situation involves dealing with complex taxation processes and learning taxation laws. One of the tasks involved in completing crypto taxation is accounting.

Companies are increasingly investing in cryptocurrencies and adding them to their balance sheet.

Some of the stats are as follows:

  • In December 2021, MicroStrategy held 124,391 BTC worth $5.8 billion.
  • Tesla bought 42,902 BTC by spending an amount of $1.50 billion.
  • Galaxy Digital held 16,400 BTC worth $779 million.
  • Voyager Digital LTD 12,260 BTC worth $582 million.

Note: the figures mention close estimation of a specific period and do not equate with the current market price.

These figures present the importance of accounting for digital assets on balance sheets.

Even if the IRS and the CRA take cryptocurrency as a commodity, comparing digital assets with physical commodities still creates some confusion for accounting.

This article explains the accounting challenges involved while comparing crypto assets with physical commodities.

Moreover, we have listed some updates on cryptocurrency accounting by the Financial Accounting Standards Board (FASB), an organization that follows GAAP to establish accounting standards for the companies in the USA.

Crypto Accounting Issues That Need FASB Guidance

Reporting Highly Volatile Assets

The legal status of cryptocurrency has not still been verified. It does not equate to a legal tender. Moreover, most of the governments have not listed a clear set of guidelines to regulate these assets.

Among all the scenarios, cryptocurrency accounting poses serious challenges to report with the standard methods.

Some of the regulatory institutes compared cryptocurrency with a commodity; however, considering the high volatility swings, it needs a proper setup to differentiate it from other standard accounting methods of FASB.

GAAP Regulations and Inconsistency with Cryptocurrency Accounting

GAAP stands for Generally Accepted Accounting Principles. It states all the financial and accounting rules that are commonly followed and are called standard practices.

Under GAAP’s intangible assets rules, if an impairment loss occurs, you need to report it on your balance sheet. However, even if the impairment loss gets recovered during the year, you are not allowed to reverse it.

Let’s take an example to understand the situation here. Suppose Tesla bought $500,000 of BTC in 2019. The value of Bitcoin drastically gets low in the mid of 2019, and the total value of BTC becomes $400,000. According to the reporting standards, Tesla has to report a loss of $100,000.

However, during the year, if the value of BTC that is in the hold of Tesla raises to $700,000, Tesla will be able to report it.

A similar situation happened with MicroStrategy, a company holding many Bitcoins. In December 2021, MicroStrategy had Bitcoins worth $2 Billion. However, their balance sheet showed only $1.1 Billion.

It creates two problems. The first one is ineffective accounting rules for cryptocurrency, and the second one is the trust gap between the people who read all these financial reports.

FASB Updates Following Cryptocurrency Accounting

FASB Updates Following Cryptocurrency Accounting

Investors and FASB Feedback

In 2021, FASB came forward with a plan to ask the public input to set its five-year technical agenda. It wanted topics they should prioritize and address.

Digital assets and their regulation stand as the sixth priority to be addressed. Digital assets standing at the six positions definitely speak some facts about how investors are noticing the impact of changing dynamics.

A Timeline for FASB and Cryptocurrency Standard Accounting

  • October 2020: the board decided NOT to add digital assets to their main technical agenda considering this issue does not have high heat to be at the table.

  • Early 2021: the board once again raised the same old voice. It said that the issue had not developed an intensity to be discussed under prioritized technical agendas.

  • Late 2021: the board got enough reports to address the issue and consider it under its prioritized technical agendas.

  • 2022: the digital asset was included under the research agenda of the board and was announced at the 20th Annual Financial Reporting Conference.

FASB Reviewing Cryptocurrency Accounting Standards

The present issues in cryptocurrency accounting brought FASB to start a project where they will review all the digital assets. Moreover, the decision was voted unanimously.

This news was also reported and tweeted by the CEO of MicroStrategy.

As the tweet itself suggests, this is big news for crypto investors, and it has a lot of heat as well. The standard accounting rules will bring in more investors in the cryptocurrency and a better trust for the people who interpret this financial reporting.

Ask a Question from Cryptocurrency CPA

You need to consume a lot of information before reporting your crypto assets. Moreover, the taxation rules add up to the already complex work.

To avoid any confusion, you can ask any question from a professional crypto CPA.

If you need any help filing your taxes, we are here to save your money. At AkifCPA, we have helped thousands of people with the best taxation services possible, and we would love to help you as well. Contact us today and save your money.

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