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Starting today, the Financial Accounting Standards Board will put into effect its fair value accounting standards for btc and other eligible cryptoassets.
Under the new rules, companies will measure crypto assets at their fair value and update them each reporting period in their financial statements. This will help businesses make profits and losses based on bitcoin (btc) market prices, helping them stay up to date with the often fluctuating trading status of the currency. FASB ASC subtopic <a target="_blank" href="https://www.fasb.org/Page/ShowPdf?path=ASU+2023-08.pdf&title=ACCOUNTING+STANDARDS+UPDATE+2023-08%E2%80%94Intangibles%E2%80%94Goodwill+and+Other%E2%80%94Crypto+Assets+%28Subtopic+350-60%29%3A+Accounting+for+and+Disclosure+of+crypto+Assets&acceptedDisclaimer=true&IsIOS=false&Submit=” target=”_blank” rel=”nofollow”>350-60 describes a new accounting standard that is suitable for fungible cryptoassets that meet certain requirements. However, nfts, wrapped tokens, and internally generated digital assets are exempt from the scope.
nfts are unique and non-tradable, meaning no two are alike, unlike bitcoin, and factors such as inconsistent pricing, low liquidity, and subjective valuations make it difficult to measure the fair value of an nft. Additionally, unlike btc, nfts typically come with specific rights and utilities. All of these reasons make nfts inappropriate for standardized fair value measurement as mandated by the ASU. 2023-08.
“Non-Fungible Tokens (ASU 2023-08 applies only to “fungible” intangible digital assets because it is difficult to obtain market prices that comply with FASB ASC Topic 820, Fair value measurement, fair value criteria for non-fungible digital assets; Therefore, it is unclear how to account for and disclose other types of digital assets, such as non-fungible tokens. Filing entities that account for nfts must fully understand the rights associated with these tokens and what they transfer.”
read the FASB Accounting Standards Update
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What the new FASB rules mean for investors
Companies holding btc as treasury reserve assets can now benefit from simplified reporting processes due to FASB's decision to adopt fair value accounting. The update is expected to accelerate corporate adoption by providing greater transparency and more accurate valuation of cryptocurrency holdings for investors, creditors and other stakeholders. As businesses increasingly turn to btc as a long-term strategic reserve, this rule change will further cement btc's dominance in the fabric of modern finance.
Allowing companies to account for btc, with btc assets valued at fair value, will eliminate a major gap in corporate reporting, given that btc used to be valued using its purchase price until now. Any gains were left off the books and losses were only recorded if the value declined. Offering this option will also give retail investors a complete view of a company's financial condition.
The new rules, which require reporting btc at current market value, will bring more transparency and accuracy to financial statements, allowing investors to assess risks, cash flows and performance more effectively for companies like MicroStrategy, Tesla, etc. The differences between traditional markets and the crypto economy are fading as control of btc as a financial asset becomes firmer and clearer, and fair value accounting standards are now applied.
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