The Financial Accounting Standards Board (FASB), the body responsible for setting accounting and financial reporting standards for companies in the United States, has turned its attention to digital currencies.
In its recent board meeting, the non-profit organization discussed the addition of a project to review “accounting for exchange-traded digital assets and commodities.” According to a Wall Street Journal (WSJ) report, the agenda was adopted, and the accounting standards-body will now embark on the project.
Per the WSJ, the FASB has now made setting rules by which companies and non-profit organizations that hold digital currencies will report the asset in their accounting a priority. However, the FASB focuses on only plain digital currencies including BTC and ETH and not NFTs.
The body said it reached its decision due to the digital currency industry’s growing need for clarity. It has been getting a lot of feedback from industry players who point out that accounting and financial disclosure standards are urgently needed for the public’s interest, especially as the market cap of digital currencies has grown rapidly.
In the past, the FASB has dragged its feet in taking up the agenda as it did not consider digital currencies to have reached significant levels of adoption by institutional players.
What does the FASB’s decision mean for digital currency adoption?
At present, companies that hold digital currencies have been reporting them based on guidelines from the Association of International Certified Professional Accountants (AICPA). This reporting method has been criticized as it requires the reporting of digital currencies as “indefinite-lived intangible assets.” Companies cannot mark up gains in their holdings unless they sell the assets, but have to report impairment losses when the assets fall below their purchase price.
The FASB has stated that it will consider adopting fair value accounting for digital currencies. This will allow the digital currencies to be treated as financial assets in the account books of companies, the WSJ reports.
The move will notably fill a significant gap that many have noted to be holding back digital currency adoption by institutions.
Getting any clarity in dealing with digital currencies is always welcome by the community. Market bulls have cheered on other efforts to provide clarity for the industry, including the Biden administration’s plan to modernize digital currency laws and the U.S. senators’ push to make favorable digital currency policies.
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