The Financial Accounting Standards Board (FASB) is exploring an accounting standard for digital currency in response to increasing concerns about inconsistent accounting standards.
FASB, which sets standards for U.S. Generally Accepted Accounting Principles (GAAP) adopted by the U.S. Securities and Exchange Commission, will consider adding this project to its agenda at a public meeting, the time of which has not been set, according to Thomson Reuters
The Chamber of Digital Commerce (CDC) requested standards to address concerns that have emerged in the expanding digital currency market. CDC sent a letter on June 8 seeking the FASB’s help in providing guidance to determine when to recognize digital currency and how to measure it.
Proponents of digital currency and blockchain technology, which supports digital currency, claim it to be a possible business game changer comparable to the Internet. The use of digital currency as a payment method, however, is far from common and is even prohibited in some countries.
Digital currency is also used by hackers as a means of payment, as demonstrated in May when hackers demanded victims of the WannaCry cyber attack pay ransom in bitcoin to restore their computer data.
Digital currency supporters, however, point to the growing use of digital currency for transactions and the fact that major companies like Overstock.com, Microsoft Corp. and Dell Inc. accept digital currency for payment. Besides being used for payments, businesses also hold digital currency as an asset they can sell when its value rises.
The CDC noted that the growing use of digital currency calls for consistent accounting guidance. In its letter, it stated that there is no authoritative literature under accounting principles that are generally accepted in the U.S. to address the accounting for digital assets or digital currencies.
Some financial experts think digital currency should be accounted for under Topic 305, “Cash and Cash Equivalents,” while others prefer Topic 350, “Intangible Assets,” or Topic 330, “Inventory.”
The lack of authoritative guidance results in auditing questions that can discourage investors as well as research and development. The CDC also noted that it can also discourage startups from going public.
CDC said FASB should establish an accounting model that permits businesses to recognize digital currency when they control its economic benefits, and measure it at fair value with income changes.
This position is similar to what the Australian Accounting Standards Board presented to the International Accounting Standards Board (IASB) advisory panel, the Accounting Standards Advisory Forum (ASAF), suggesting the board consider consistent digital currency accounting.
Henri Venter, director of the Deloitte Australia’s national accounting technical team, said the lack of guidance in global accounting standards resulted in accounting for digital currencies under IAS 38, “Intangible Assets,” or IAS 2, “Inventory,” but neither standard’s measurement guidance provides sufficient information for investors or analysts on the value of the currency.
Venter urged the IASB to establish a standard requiring the measurement of the currency at fair value, recognizing changes in net income. The board has not acted on this request, but indicated it will continue to consider it.
ASAF members expressed concern about the IASB taking on a project for an industry in its infancy. The FASB is also considering the bigger issue of accounting for intangible assets, and could consider digital currency within that project.
The issue of intangible assets has been a challenging one for most of the FASB’s history. Questions have arisen about when intangible assets should be recognized on balance sheets, and how to measure and recognize them.
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