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According to a story published by The Wall Street Journal on August 31, the Financial Accounting Standards Board (FASB) has decided not to include non-fungible tokens (NFTs) and some stablecoins in its examination of crypto accounting.
According to the article, the FASB regulation would encompass digital assets that are intangible, fungible, and don’t have any contractual rights to cash flow or ownership of goods and services. This means that cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) will come within the ambit of this rule.
The explanation of non-fungible tokens and the exclusion of specific stablecoins
NFTs will seemingly be exempt from the crypto accounting regulation since they are non-fungible and often contain rights to underlying products and services, whereas certain stablecoins are physical assets. This distinction is important because the rule will not apply to NFTs.
Susan Cosper (a member of the FASB board), is quoted saying the following in reference to the exclusion of certain assets:
“At this point in time, non-fungal toxins are neither prevalent nor material. It is most definitely something that we will be able to concentrate on later if it becomes necessary”
Rules for crypto accounting are still being developed.
Companies that hold digital assets as well as investors who own digital assets have frequently demanded more clarity on how to account for crypto assets inside their portfolios. Cryptography was not included to the FASB’s list of technical priorities until May of this year.
The board’s rule-making process will begin with the first step, which is the creation of a new criteria outline. Prior to establishing the standards, the FASB would still be required to propose and evaluate a proposal.
Accounting regulations currently used by corporations that own NFTs and other crypto assets use the guidelines established by the Association of International Certified Professional Accountants (AICPA), which are not legally enforceable.
According to the criteria of the AICPA, these assets are classified as intangible assets with indefinitely long life, similar to trademarks. In accordance with the standards, firms are required to conduct an annual evaluation of the asset’s worth.
They are entitled to a write-down if the asset’s value falls below its acquisition cost, and they are required to declare a profit only when they sell the asset for a price that is higher than their initial investment in it.
Due to the highly volatile nature of the cryptocurrency market, these accounting rules have been subject to criticism from corporations holding cryptocurrencies advocating for a fair-value accounting regulation. This is not surprising given the sophistication of the International Accounting Financial Standards (IFRS) have been improved over time.
It will be a while before Financial Accounting Standards Board (FASB) and similar organizations across the world come up with standards that will support the dynamic nature of the crypto market. Crypto accounting standards are important as more corporate investors find more crypto or digital assets in their balance sheets.
Given the applicability of FASB to the US and that of IFRS, which is applicable to more jurisdictions across the world, it is also a matter of time before crypto accounting standards are internationalized.
