Lawmakers Urge Accounting Guidance for Cryptocurrency

Emmer Urges FASB to Issue Clear Accounting Standards for Virtual Currencies

May 12, 2021

Washington, D.C. — Today, Congressman Tom Emmer (MN-06), along with the Congressional Blockchain Caucus, sent a letter to Chairman Richard Jones of the Financial Accounting Standards Board (FASB) urging the establishment of appropriate accounting standards for companies with digital asset holdings. Currently, the FASB has not developed any accounting standards for bitcoin holdings, and uniform accounting standards are needed to provide companies and stakeholders the necessary clarity to confidently engage with these assets.

Specifically, Congressman Emmer's letter recommends that the FASB update its definition of financial instrument to include digital assets and consider that companies hold digital currencies for varying purposes when assigning one of four different appropriate accounting standards.

"The growth of digital assets has been staggering and will only continue to rise. To ensure clear rules of the road, authoritative accounting guidance from the FASB is imperative. Companies with bitcoin holdings deserve clarity. If our institutions do not keep pace, engagement with digital assets will stall. I am urging the FASB to take the lead and issue guidance that will encourage the ongoing growth of this industry," said Emmer.

“With clear and appropriate authoritative accounting standards, companies will be able to clearly reflect the value of their digital asset holdings on their balance sheets, which offers investors and stakeholders more transparency and strengthens our markets," Emmer concluded.

"This is an important statement to establish much needed accounting standards for digital assets. Without this authoritative guidance, companies fortifying their balance sheets with digital assets are left to figure out the appropriate accounting method on their own — a barrier to adoption. The leadership of Congressman Emmer and Members of the Caucus will help clear a major obstacle preventing the United States from establishing a clear regulatory framework for digital assets. This letter is a great step towards strengthening U.S. competitiveness in this growing industry,” said Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce.

"As an increasing number of major, mainstream companies hold or plan to hold digital assets on their balance sheets, it's vital that policymakers put forward well-structured, clear accounting and reporting standard for those assets. Cultivating a transparent and considered accounting standard is integral for the increased mainstream adoption of digital asset investment. We commend Congressman Emmer and the other members of the Blockchain Caucus as they pursue consistent, pro-growth regulatory policies, ensuring the United States remains a leader in the digital asset economy," said Kristin Smith, Executive Director of the Blockchain Association

Background:

The way digital assets are accounted for on balance sheets has significant impact on financial statements and companies' bottom lines. The Financial Accounting Standards Board (FASB) has not issued any accounting standards for digital assets. This results in companies conforming to non-authoritative guidance, and the lack of accounting certainty impacts stakeholders and financial statements. It also discourages companies from buying, holding, and using digital assets.

Read the letter here.

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May 12, 2021

Mr. Richard Jones
Chair
Financial Accounting Standards Board
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116

Dear Chair Jones,

As the market capitalization of bitcoin continues to surpass USD $1 trillion, which is larger than JPMorgan Chase & Co., Citigroup Inc., and Bank of America Corp., combined, it is clear that digital asset holdings are accelerating at a rapid pace. The growth in digital assets on domestic balance sheets is significant and has had and will continue to have a material impact on financial statements. Numerous recent events, such as multiple publicly traded companies acquiring significant amounts of digital assets, have made this clear. We urge you to establish accounting standards that afford companies clear alternatives to determining the accounting treatment for digital assets maintained on their books.

U.S. businesses and American entrepreneurs are investing billions of dollars in this important innovation. Business intelligence software provider MicroStrategy Incorporated, for example, had acquired and was holding a total of 70,469 bitcoins as of December 31, 2020, which had an approximate market value of $2.0 billion at the time, yet the bitcoin were reflected on its year-end balance sheet as having a carrying value of only $1.1 billion due to the Generally Accepted Accounting Principles (GAAP) accounting treatment currently in effect. In addition, Grayscale Investments now has bitcoin holdings in its Bitcoin Trust of over $30 billion, of its $36 billion in assets under management, as of March 17. Jack Dorsey, CEO of Twitter and Square, recently partnered with musician and entrepreneur Jay Z to create a $23 million bitcoin trust. These are some very recent examples of large digital asset investments by public companies and others.

U.S. financial regulators are also recognizing the enormous potential of digital assets. Over the past year, the Office of the Comptroller of Currency (OCC) issued statements related to digital assets, such as allowing national banks to provide custody services for digital assets.¹ This opens opportunities in digital assets not previously available to U.S. banks as well as more avenues for lending to companies that are in the digital asset industry and/or collateralizing credit with digital assets. Those credit opportunities give rise to banking industry needs for better credit analysis on financial statements with digital assets in addition to ultimately encouraging further growth.

In June 2019, the International Financial Reporting Standards (IFRS) Interpretations Committee published an “agenda decision” on how the Committee believes an IFRS reporting entity should apply IFRS standards to digital assets.² Following the public comment period, the Committee's staff offered some guidance but did not recommend digital asset accounting as a topic for standard setting. Again, the scope of this agenda decision covers primarily entities reporting under IFRS but is not considered “authoritative guidance.”

Recognizing the lack of clarity, in December 2019, the Association of Independent Certified Public Accountants (AICPA) issued a non-authoritative practice aid providing non-authoritative guidance for accounting for digital assets.³ The conclusion of the publication is that digital assets should be accounted for as an intangible asset under ASC 350, but our understanding is that this was largely unsupported by industry practice.

These attempts to provide guidance in digital asset accounting do not reflect industry practice, and lack of thoughtful and carefully developed authoritative guidance from the FASB threatens the ability to create accurate and consistent financial reporting of a large and fast-growing financial asset class.

The growth of digital assets has been staggering and will likely continue to be even more significant. For these reasons, we urge the FASB to provide authoritative accounting guidance for digital assets.

In developing this guidance, we encourage the FASB to update its definition of financial instrument to include digital assets such as virtual currencies. Recognizing that companies hold digital currencies for varying purposes, we believe the FASB should take into consideration how a company intends to use its bitcoin holdings when determining the appropriate accounting method. We have identified four different views that are considered in determining the appropriate accounting methods for digital currencies under current U.S. GAAP:⁴

• Digital currencies should be accounted for under ASC 305, Cash and Cash Equivalents.

• Digital currencies should be accounted for as financial instruments under ASC 825, Financial Instruments.

• Digital currencies should be accounted for as intangible assets under ASC 350, Intangibles — Goodwill and Other.

• Digital currencies should be accounted for as inventory under ASC 330, Inventory.

It is important that standards be set to consider the use of the asset and to assure consistency in financial reporting. The impact of digital assets on financial reporting of public and non-publicly traded companies is being felt. Failure to establish sound authoritative guidance in accounting for these assets jeopardizes the integrity of financial reporting. Accordingly, the FASB must promptly address this need for guidance.

Thank you for your attention to this matter.

Sincerely,

Tom Emmer
Member of Congress

Darren Soto
Member of Congress

David Schweikert
Member of Congress

Bill Foster
Member of Congress

Ted Budd
Member of Congress

Josh Gottheimer
Member of Congress

Ralph Norman
Member of Congress