The Financial Accounting Standards Board (FASB) has unveiled an important update to its accounting standards. This update will affect cryptocurrency assets and may improve their financial reporting. The new approach or updates will help firms to have a clear understanding of their financial position and the actual value of their holdings. It will also reduce the complexities and costs of the old accounting model.

FASB’s Change To Fair Value Accounting

FASB will adopt the new approach and will start from 15 December 2024. It has voted to set a new rule on accounting and disclosure. This will prompt companies holding crypto assets to accurately reflect their true financial position. The businesses therefore can classify crypto assets as indefinite-lived intangible assets. It is similar to intellectual property such as copyrights. Therefore, by implementing fair value accounting, companies can now review the value of such assets annually and record their gains when they sell. 

Benefits of Fair Value Accounting

Fair value accounting is the process in which the actual value of a stock, product, or security is agreed upon by both the buyer and the seller. There are several benefits of using fair value accounting. This is why FASB has adopted this new accounting standard for cryptocurrencies.

Valuation Can Be More Accurate

Fair value accounting is invariably more accurate because it follows all the relevant prices irrespective of fluctuations. This helps evaluate cryptocurrencies because their prices are also prone to fluctuations. 

Increases Chances of Survival

Fair value accounting helps businesses including those dealing with cryptocurrencies to increase their chance of survival. It also allows proper valuation of assets because sometimes firms overestimate their assets. 

Suitable for Many Assets

The fair value reporting method is suitable for many assets. It is also useful for analyzing historical cost value. Therefore, market analysts can infer a lot by using the fair value reporting method. 

Possible Impact on Financial Clarity

The latest move by FASB indicates that prominent financial institutions are recognizing cryptocurrencies and their possible impact on financial reporting. It will also fulfill many stakeholder demands and ensure more transparency in financial disclosures. Therefore, it can help in providing financial clarity to many new crypto investors and improve their decision-making. In the history of accounting, this is a crucial move as it can help in better understanding of digital assets.

FASB’s fair value can also be beneficial for the legal fraternity because it reduces both costs and complexity that are associated with applying the present cost-less impairment model. Updated standards can help companies and crypto investors with more appropriate information. It can also allow better analysis of cryptocurrencies by crypto firms. 

Before the implementation of fair value reporting, accounting standards treated cryptocurrencies like Bitcoin as intangible assets. This essentially means that if the price went lower than what companies bought for, they had to record the impairment charge in their books, even if they did not sell. Conversely, when the prices rose, they could not receive or record any gains on their books, unless they sold. However, with the implementation of fair value accounting, companies can periodically record all their losses and unrealized profits to gain an actual benefit. 

Also Read– Advantages of Creating Apps on Blockchain

Conclusion

The recent decision of the FASB will have a long-lasting effect on cryptocurrencies. It will help many crypto companies to become more transparent while dealing with cryptocurrencies. The general benefits of fair value reporting such as increasing chances of a business’s survival, accurate valuation, and suitability can increase investor confidence and make cryptos more credible than before.