Federal Reserve System adds voice to investor push for FASB rules on digital assets

The Board of Governors of the Federal Reserve System added its voice to the list of investors asking the FASB to develop accounting rules for digital assets, items like Bitcoin that are rapidly growing in use, according to Sept. 22, 2021, letters to the U.S. accounting rulemaker.

If appropriate, the board should amend the scope of existing accounting standards to include digital assets or develop a new standard specifically for those assets, the agency suggested in a Sept. 22, letter signed by Jeffrey Geer, associate chief accountant in the Office of the Comptroller of the Currency, and Lara Lylozian, deputy associate director and chief accountant of Board of Governors of the Federal Reserve System.

“We observe growth, increasing interest, and innovation in related services conducted by regulated entities,” the letter states. “Eliminating ambiguity in existing accounting standards and ensuring the economic substance of transactions is reported in the financial statements strengthens the Agencies’ ability to assess exposure and related risks at institutions. The issues are complex and may require an extended period for the Board to sufficiently address. Thus, adding a project to the standard-setting agenda in the near term is desirable.”

The Federal Reserve System is the nation’s central banking system, created in 1913 via the Federal Reserve Act. Its board of governors is charged with overseeing Federal Reserve Banks and helping implement the monetary policy of the U.S.

The letter comes at a time when the FASB is seeking public input on its five-year technical agenda, publishing Invitation to Comment (ITC) No. 2021-004, Agenda Consultation, in June toward that effort. The comment deadline on the ITC ended on Sept. 22.

The board received 134 comment letters, many of which made similar request for concrete rules focused on digital assets – also referred to as cryptocurrencies.

Under current GAAP, cryptocurrencies meet the definition of an indefinite-lived intangible asset and are generally accounted for as such, yet the intangible asset accounting model does not capture the underlying economics, comment letter respondents said.

One investor group, the Alliance of Concerned Investors, suggested – as others have – that the board pursue a fair value option for balance sheet reporting, with fair value changes reflected in earnings for companies currently placing investments in digital assets.

“We also suggest disclosure requirements that include management’s intention for making such investments: are they merely speculations? Are they hedging instruments, and if so, what is the hedged item? Over what term are such assets expected to be controlled?” the investor group said in a Sept. 22 letter.

Similarly, S&P Global Ratings in its letter said while digital asset holdings are currently only significant for a few companies, it is an area of significant investor and user interest that it expects to increase.

“The current accounting of these as intangible assets has been challenged by numerous users and other constituents. We believe a direct accounting standard or guidance on this topic will benefit the investor and user community,” S&P wrote. “Additionally, the starting point of our credit analysis are financial statements and improved accounting for this unique asset will be highly beneficial.”

Other investor groups asking for rules on digital assets, include the National Venture Capital Association, which said it would be “helpful to venture capital funds and to companies holding digital assets.”

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