MicroStrategy endorses ‘fair value model’ proposal for reporting crypto holdings

MicroStrategy, the largest public holder of bitcoin, has joined the growing list of supporters backing proposed rule changes by the financial accounting standards board (FASB), which seeks to eliminate impairment charges for companies holding cryptocurrencies.

As of March 31, MicroStrategy held approximately 140,000 BTC, giving it a significant position in the crypto market.

Introducing the fair value model

Under the current generally accepted accounting principles (GAAP), crypto assets are classified as “indefinite-lived intangible assets” and subject to impairment testing, which identifies a permanent decline in their value.

When the carrying amount of the asset surpasses its fair value, companies must recognize an impairment loss and adjust the carrying amount accordingly.

However, proposed amendments by the FASB aim to introduce changes to the accounting treatment of crypto assets.

According to a draft of the proposed amendments published in March, the FASB suggests that entities should periodically measure certain crypto assets at fair value and recognize any changes in fair value in their net income.

This shift in reporting requirements would have significant implications for companies holding crypto assets, as it would remove the need for impairment testing and instead focus on the fair value measurement.

By recognizing fair value changes directly in net income, entities would provide a more transparent and timely reflection of the crypto asset’s market value.

The proposed amendments have gained attention and support from industry players, with MicroStrategy being the latest to endorse the “Fair Value Model” proposal for crypto holdings reporting. In a letter dated, May 22, 2023. 

“Reporting crypto asset holdings under a fair value model, as proposed by the FASB, would enable us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings, which in turn would facilitate the ability of investors to make informed investment and capital allocation decisions.”

MicroStrategy, open letter.

The FASB has opened a comment period for stakeholders to provide feedback on the proposed amendments to accounting standards for crypto assets. Interested parties will have the opportunity to submit their comments on the proposed changes until June 6.

The need for revised accounting standards

As the largest public holder of bitcoin, MicroStrategy’s backing carries weight in the industry and highlights the growing recognition of the need for revised accounting standards in the crypto space.

If implemented, these changes would bring about a more standardized and consistent approach to reporting crypto assets.