This means companies record digital assets on their balance sheets at historical cost, minus drops in value during the period. The upshot is that companies only get to record price dips—never recoveries, if the value rebounds.
For volatile digital assets, it almost always means companies have to record impairments, even if they’re only losses on paper.
‘FASB has no disclosure rule’
“Right now, FASB has no disclosure rule, zero,” Fang said. “The only thing we know they need to tell us is the cost of whatever Bitcoin holding they have, and if there is an impairment, they have to recognise the impairment charge.”
The Financial Accounting Standards Board is in the early stages of writing rules to fill the digital asset guidance gap. It has fielded hundreds of requests asking for rules that allow companies to reflect the fair value of their crypto holdings, so they capture not just the lows, but also when crypto values spike.
Accounting impairments drag down earnings for companies that bet big on Bitcoin. Enterprise software maker MicroStrategy Inc, which holds the most Bitcoin of any public company, has had to record millions in losses because of the accounting. It voluntarily discloses a bevy of information about its crypto, including the average purchase price and the coins’ fair value during the quarter, as a supplement to the official accounting.
Tesla in February 2021 announced that it had bought $1.5bn (R25.29bn) worth of crypto and that it would accept Bitcoin as payment for cars. Two months later, it sold 10% of its stake, generating $101m (R1.70bn) from the sale.
CEO Musk has touted the value of Bitcoin and cryptocurrency in general.
“This should not be taken as some verdict on Bitcoin,” Musk told analysts on Wednesday. “It’s just that we were concerned about overall liquidity of the company given the Covid shutdowns in China.”
More stories like this are available on bloomberg.com