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International Accounting Standards Board believes Bitcoin will be gone within five years
The FASB and IASB, the two main rule-setting bodies for accounting standards worldwide, cited “lack of usage” as the main reason for not clarifying cryptocurrency accounting treatments.
The FASB and IASB, the two main rule-setting bodies for accounting standards worldwide, cited “lack of usage” as the main reason for not clarifying cryptocurrency accounting treatments. So far, onerous accounting standards have hindered Bitcoin and cryptocurrency adoption.
The California Society of CPAs (CalCPA) is pushing for clearer accounting and disclosure rules for cryptocurrencies.
Accounting standard-setting bodies cautious towards cryptocurrency
CalCPA issued a letter to the Financial Accounting Standards Board (FASB) which urged them to update the Generally Accepted Accounting Principles (GAAP)—the rules that govern accounting in the U.S.
The letter was circulated in response to a December 2018 statement from the International Accounting Standards Board’s (IASB) chairman Hans Hoogervorst:
“The IASB typically takes five years to develop a new accounting standard… and my prediction is cryptocurrencies will be gone before that time.”
FASB chairman Russell Golden mirrored Hoogervorst’s statements, saying:
“The number of companies working with cryptocurrencies is still extremely limited around the world.”
In the meantime, the chairmen directed certified public accounts to a specialized committee within the American Institute of CPAs. Instead of creating new standards for the GAAP, the International Financial Reporting Standards (IFRS) Interpretations Committee agreed to publish a non-binding statement summarizing the application of existing standards as applied to cryptocurrencies.
CalCPA strikes back
Nancy Rix, the chair of CalCPA’s Accounting Principles and Assurances Services Committee responded:
“We believe the usage of cryptocurrencies will not diminish over time, and will continue to expand in both volume and new fields of application.”
The committee advocates for an accounting model that resembles the one used for foreign currency. With over 40,000 members, CalCPA has a strong presence in the accounting industry.
The IFRS Foundation set a meeting for June 11–12 in London to finalize their position on cryptocurrency. A staff paper recently issued by the IFRS Interpretations Committee cited 20 comment letters submitted on the subject, 16 of which recommended the Board create standards for cryptocurrency holdings.
The committee did provide some clarity to CPAs, giving the following definitions for digital assets:
- A cryptocurrency is a digital or virtual currency that is recorded on a distributed ledger and uses cryptography for security.
- A cryptocurrency is not issued by a jurisdictional authority or other party.
- A holding of a cryptocurrency does not give rise to a contract between the holder and another party.
The committee also recommended that cryptocurrency be classified as an intangible asset rather than a financial asset. Based on that interpretation, cryptocurrency holdings would be counted as inventory for business purposes. It would also mean that individuals and organizations facilitating the trade of crypto would be acting as commodities broker-dealers and would need to be licensed appropriately.
Potentially dire consequences for cryptocurrency in the U.S.
By delaying standard-setting and disclosures for cryptocurrency, the FASB is making it difficult for CPAs to provide consistent guidance to their clients. The more difficult it is for businesses to transact and pay taxes on cryptocurrency the less likely they are to adopt it as a means of payment. Moreover, these rules are critical for startups offering services based on cryptocurrency.
Difficulty in dealing with accounting rules stifles innovation and makes it difficult for businesses using crypto to operate. As decentralized finance matures, the standard-setting bodies will either need to set clear standards of risk letting the U.S. fall behind.