Crypto Accounting Clarity being sought after by California CPAs

The society of California’s Certified Public Accountants (CalCPAs) is calling for clarity in accounting and disclosure rules regarding cryptocurrencies. They have cited that there is a lack of guidance particularly for U.S. (GAAP) Generally Accepted Accounting Principles. The GAAP is the measuring standard for accountants to process and communicate financial information in the U.S.

The CalCPA is a 54-member committee and their collective concern is that companies who itemize cryptocurrencies on their financial statements use different reporting methods and also that the varying approaches may reflect the nature and risks of holding cryptos.

Digital assets are viewed in different ways and this has become a form of accounting confusion. In some cases, cryptocurrencies may be recorded at “lower of cost or market,” at fair value, or as intangible assets and these are dependent on the circumstances. According to Andrew Parrish co-founder of Alternate Tax Solutions, these discrepancies are borne out of the flexibility on a balance sheet where cryptocurrencies can be reported as anything from a commodity to an investment or even be counted as working capital.

The Financial Accounting Standards Board (FASB) has noted that digital assets have many institutional interpretations, yet they define cryptocurrencies as indefinitely-lived intangible assets instead under ASC 350, or, Intangibles-Goodwill and Other.

Nancy Rix, Chair of CalCPA’s accounting principles and assurance services committee in a letter to the FASB said: “We believe the usage of cryptocurrencies will not diminish over time and will continue to expand in both volume and new fields of application,” “We anticipate it will not be long before major public companies start using cryptocurrencies, as illustrated by JP Morgan’s decision to issue JPM Coin in February 2019,”

The GAAP policies only accurately reflect the risks associated with holding cryptocurrencies. According to Parrish, “A balance sheet is a snapshot and every asset carries a risk of changing price tomorrow. Even banks can go bankrupt,” “If Bitcoin is $100,000 today, and $90,000 tomorrow, you just have to write down the loss,” Parrish said.

CalCPA apparently believes that the FASB currently pursues a classification model that does not cover accounting for foreign currencies. Hence the FASB’s stance does not exactly address the issue at hand which will continue to linger since digital assets continually find their way onto balance sheets of more companies. In addition, added rules by the body of authority would address currencies that have an active market and are held by an entity as a medium of exchange or investment.

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Credits- Daniel Kuhn

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