Crypto accounting: Investors need more clarity in the rules

The author is the editor of The Dig and extraordinary professor in the MBA program of the American University

Despite the increasing use of digital assets, there is still a large gap in the accounting regulations on what to do when companies hold. Investors earn more clarity about these extremely volatile bets.

Neither the US nor international accounting regulations expressly mention digital assets such as Bitcoin or StableCoins. The only council comes in the form of non -binding accounting guidelines of the American Institute of Certified Professional Accountants and similar instructions in June 2019 from the authors of the International Financial Reporting Standards.

The guidelines of the organizations are subject to interpretation, but both suggest that cryptoinvestment as intangible assets. Adjustments of your values are only made for price declines. Until the sale of the assets, no interim adjustments upwards are permitted to consider increases in value.

However, these guidelines, however, have listed companies that keep volatile crypto-assets, still a lot of scope when it comes to what they provide investors in presentations and press releases that complement the necessary submissions. These decisions will shape the market count in relation to the crypto strategies of companies.

we take the case of the software company Microstrategy, which claims to be the world's largest listed owner of Bitcoins and keeps about 125,000 of them. In the case of current market courses, it is worth around $ 5 billion.

The presentation of the Bitcoin stocks of Microstrategy to investors was examined by the US stock exchange supervisory authority SEC (Securities and Exchange Commission), which wrote to the company on October 7 and questioned its approach.

The company has submitted legally required degrees in accordance with the rules known as "generally recognized invoice principles" and disclosed the impairments of its participations. In its result for the fourth quarter, it reported a Bitcoin depreciation of $ 146.6 million

However, Microstrategy had previously presented non-GAAP profit and loss figures in profit press releases that excluded impairments to its Bitcoin stocks. Such alternative key figures can be misleading because they redirect investors to numbers that tell an incomplete story about the company's results.

In his response to the SEC,

Microstrategy argued that some investors "may not consider the impairment losses of Bitcoin to be impossible to pay as valuable information without taking into account the later market value increases equally". Although it claims that the purchase of Bitcoin is part of his normal business, it said that loss of value on the cryptocurrency "otherwise could distract from the investor analysis of its software analysis business".

The SEC later decided that it obtained against the Microstrategy approach. The reminder was considerable enough to trigger a 20 percent decrease in the company's share price after writing the Sec on January 20th.

The SEC can finally set the use of non-GAAP adjustments for income for every owner of crypto-assets. Some may stop by themselves to avoid a SEC letter. In the absence of clear rules, companies with crypto-assets have opted for different accounting approaches.

In the latest results, Tesla bundled the negative effects of a recently reduced impairment with other items in the accounts. But Coinbase and Square have reported more clearly about impairments of crypto-assets in the past.

Coinbase also had to have a accounting decision about its stocks of around $ 92 million in the digital currency USD meet Coin, a so-called stable coin that is covered with dollar or equivalent and has a value near the US currency. As such, it classifies USDCs as circulation assets, a balance sheet category for stocks that are very liquid, such as: B. cash, or which can be sold against cash within a year. It treats the value of its USDC stocks like a financial instrument. This means that they are evaluated at continued acquisition costs - the value is written off over time.

This approach is similar to how the data analysis group Palantir treats the gold that it bought as a security against the end of the world. The group announced last August to buy 100 -unzen gold bars worth $ 50 million. Palantir first recorded the gold at acquisition costs and plans to re-evaluate it in every period for the lower acquisition or market value.

We could have more tricky challenges in bookkeeping. For example, take the hot market for NFTS or not fun. How should companies record NFTs in their books? David Larsen, specialist for alternative systems at Kroll, told me that there is still very little secondary market for NFTs. So how will companies bring a bored ape nft into account?