MicroStrategy, the largest public holder of bitcoin, has joined the growing list of supporters backing proposed rule changes by the Financial Accounting Standards Board (FASB), which seeks to do away with impairment charges for companies that hold digital currencies.
As of March 31, MicroStrategy held about 140,000 BTC, giving it a prominent position in the cryptocurrency market.
Introduction to the fair value model
Under current Generally Accepted Accounting Principles (GAAP), crypto assets are classified as “intangible assets with indefinite life” and are subject to an impairment test, which identifies a permanent decrease in value.
When the carrying amount of an asset exceeds its fair value, companies must recognize an impairment loss and adjust the carrying amount accordingly.
However, the amendments proposed by the Financial Accounting Standards Board aim to bring changes to the accounting treatment of crypto assets.
According to draft proposed amendments published in March, the Financial Accounting Standards Board proposes that entities must periodically measure certain crypto assets at fair value and recognize any fair value changes in their net income.
This shift in reporting requirements will have significant implications for companies that own crypto assets, as it will remove the need for impairment testing and focus instead on fair value measurement.
By recognizing fair value changes directly in net income, entities will provide a more timely and transparent reflection of the market value of a crypto asset.
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The proposed amendments have gained interest and support from industry players, with MicroStrategy being the latest to endorse a “fair value model” proposal for reporting cryptocurrency holdings. in Letter dated May 22, 2023.
“Reporting holdings of crypto assets under a fair value model, as proposed by the Financial Accounting Standards Board, will enable us to provide investors with a more relevant view of our financial position and economic value of our bitcoin holdings, which in turn will facilitate investors’ ability to make informed decisions about investment and capital allocation.”
MicroStrategy, Open Letter.
The Financial Accounting Standards Board (FASB) has opened a comment period for stakeholders to provide their feedback on proposed amendments to the accounting standards for crypto assets. Interested parties will have the opportunity to provide their comments on the proposed changes until June 6.
The need for revised accounting standards
As the largest public holder of bitcoin, MicroStrategy’s support carries weight in the industry and highlights the growing recognition of the need for revised accounting standards in the crypto space.
If implemented, these changes will lead to a more standardized and consistent approach to reporting crypto assets.