Recently, there is a huge fuss about crypto-assets (virtual currency) such as Bitcoin. But does this represent a concern for the Financial Accounting Standards Board (FASB), which is responsible for developing accounting standards? In fact, for companies that have introduced virtual currencies such as an electric vehicle (EV), Tesla, electronic payment squares, and software micro strategies, the rules for reporting financial results do not meet their original purpose. It’s a minimal issue for now, but it may not happen in the future.
According to current accounting methods, several companies that have decided to own Bitcoin classify Bitcoin as a long-term intangible asset like patents and trademarks. In other words, Bitcoin’s asset valuation will continue to decline unless it is sold and a realized gain is recorded. This is counterintuitive for Bitcoin, which is originally a speculative financial asset. Still, the FASB, which oversees accounting standards, decided earlier this year not to add cryptocurrencies to the standards-setting right now.
Meanwhile, Square, which has a market capitalization of $ 100 billion and is headed by Twitter CEO Jack Dorsey, has problems with Bitcoin regarding income statements. Square offers a service that allows customers to buy Bitcoin, but at that time, they first acquire Bitcoin for the customer, the customer’s purchase is as income, and the customer’s purchase is as an expense record. Bitcoin revenue in the first quarter was $ 3.5 billion, a sharp increase of 11 times over the same period last year, but its share was only about 2%.
These financial statements are different from, for example, how financial institutions report the income they earn from trading their clients’ stocks on their platforms. Square had previously released a non-standard income index that better reflected the reality of the business, excluding Bitcoin-related expenses. However, in 2019, after receiving a comment from the US Securities and Exchange Commission (SEC), the announcement of this index was stopped. Now people are looking at gross profit, an indicator that offsets the problems associated with Bitcoin.
One of the reasons why standards-setting bodies like FASB have decided to wait and see the scale of the problem is still small or not for such hustle and bustle. Very few listed companies own Bitcoin, and Tesla, Square, and Micro Strategy are typical examples. Both are consistent, albeit counter-intuitive, with the same accounting treatment.
On the contrary, the fact that the accounting treatment of virtual currencies, including Bitcoin, may develop into a very big problem is also a reason why the standard-setting institutions are doing their best. Digital assets have different characteristics depending on the type. Processing suitable for Bitcoin may not be suitable for other crypto assets. Creating a system that works for the whole is a difficult task. This is a natural concern if we assume that digital currencies will continue to exist. That’s why one should start responding now before the risk becomes even greater.