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Crypto Accounting Challenges: FASB’s Proposal and Regulatory Concerns

Crypto Accounting Challenges

The Financial Accounting Standards Board (FASB) issued an exposure draft (ED) in March 2023, titled “Intangibles—Goodwill and Other-Crypto Assets,” highlighting weaknesses in reporting for crypto assets. The lack of a clear definition for crypto assets as securities or commodities has led to inconsistent reporting under current Generally Accepted Accounting Principles (GAAP). The ED proposes changes, including using a cost-less-impairment model for assessing crypto assets and enhanced disclosures in financial reports. The Securities and Exchange Commission (SEC) has also expressed concerns about the risky nature of the crypto landscape.

The article reviews 2022 audits of Grayscale Bitcoin Trust, MicroStrategy Inc., and Coinbase Global Inc., illustrating challenges faced by auditors in the absence of clear regulatory guidance. The SEC’s warnings and lawsuits against major crypto platforms further emphasize the regulatory uncertainties. The ED aims to address these concerns by proposing criteria for crypto assets, changes to impairment testing, and detailed disclosures in financial reports.

While more than 80 comment letters generally support the framework of the ED, concerns exist regarding the treatment of cumulative unrealized gains and losses. The proposed requirements could enhance financial reports’ decision-usefulness and normalize crypto asset accounting. However, some suggested disclosures were rejected, leading to mixed feedback.

The examination of the 2022 financial statements for the mentioned entities reveals diverse accounting procedures and uncertainties in reporting crypto assets. The article concludes that FASB’s ED is a step in the right direction. Still, challenges and uncertainties in the crypto market remain, requiring auditors to navigate a complex landscape until clearer regulatory guidance is established.