MicroStrategy, the largest public holder of bitcoin, has thrown its support behind proposed rule changes by the Financial Accounting Standards Board (FASB) that seek to eliminate impairment charges for companies holding cryptocurrencies.
Under the current accounting principles, crypto assets are treated as “indefinite-lived intangible assets” and are subject to impairment testing, which recognizes a permanent decline in their value. However, the FASB’s proposed amendments would require periodic measurement of certain crypto assets at fair value and the recognition of any fair value changes in net income.
In a letter addressed to the FASB, MicroStrategy revealed that despite purchasing approximately $4.2 billion worth of bitcoin, the company currently reports these assets on its balance sheet at $2 billion due to cumulative impairment charges of nearly $2.2 billion. The market value of MicroStrategy’s bitcoin holdings on March 31 was close to $4 billion, which is twice the amount reported under the current accounting model.
MicroStrategy believes that reporting crypto asset holdings under a fair value model, as proposed by the FASB, would provide investors with a more accurate view of the company’s financial position and the economic value of its bitcoin holdings.
This, in turn, would help investors make informed investment and capital allocation decisions. Industry participants have also expressed their support for accounting standards specific to crypto, as it would encourage more companies to hold such assets without concerns about impairment charges resulting from short-term market volatility.
TaxBit, in a letter to the FASB, echoed similar sentiments, stating that the proposed changes better reflect the economic realities of crypto assets and would provide investors with more accurate and useful information for making capital allocation decisions.
The FASB is currently accepting comments on the proposed changes until June 6. MicroStrategy reported a significant reduction in impairment losses on its digital assets, recording $18.9 million in the first quarter of this year compared to $198 million in the previous quarter of 2022. The company incurred impairment charges of $918 million during the second quarter of 2022, which coincided with the crash of terraUSD (UST) and its associated coin LUNA, resulting in a substantial drop in Bitcoin’s price.