In Brief:
- SEC rejected MicroStrategy’s accounting adjustments for its Bitcoin Holdings
- Microstrategy’s shares prices dipped 17.8% after the news.
- SEC objected to the company’s adjustment for bitcoin impairment charges in its non-GAAP measures.
MicroStrategy, the bitcoin-hoarding software company, stocks tumbled 17.8% on Friday after the U.S. Securities and Exchange (SEC) rejected the company’s revised bitcoin accounting strategy. The company will no longer be able to remove swings in the value of its massive bitcoin holdings from its unofficial accounting measures.
MicroStrategy used measures that don’t comply with the U.S. generally accepted accounting principles (GAAP). “We object to your adjustment for bitcoin impairment charges in your non-GAAP measures,” the SEC’s Division of Corporation Finance mentioned in a letter dated December 3 that was released yesterday. “Please revise to remove this adjustment in future filings.”
MicroStrategy used non-GAAP rules to show investors what its income would have been if it didn’t have to impair its bitcoin holdings. As per standard accounting rules, the value of digital assets such as cryptocurrencies must be recorded at their cost and then only adjusted if their value goes down or is impaired. However, if the price rises, then it doesn’t get reflected until an asset is sold.
The company responded in a filing in mid-December that it would revise its disclosures of non-GAAP measures in future filings to remove the adjustment for bitcoin impairment losses and gains on sale, as requested by the SEC.
MicroStrategy has been actively accumulating bitcoins. In December, the company purchased 1,434 bitcoins worth $82.4 million, as per a Form 8-K filing with the U.S. SEC. As the cloud software company is known for buying bitcoins in chunks, the decline in shares prices amid bitcoin dramatic swings closed the day down even worse.
