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MicroStrategy, a business intelligence firm that has become popular for its heavy investments in Bitcoin, is on the wrong side of the US Securities and Exchange Commission (SEC).
According to the regulatory body, MicroStrategy failed to follow the required accounting practices for its cryptocurrency purchases.
MicroStrategy fails to adhere to accounting practices
A report by Bloomberg referred to a comment letter from the regulatory body noting that it did not approve the reporting process used by MicroStrategy for its Bitcoin purchases based on non-GAAP, also known as the Generally Accepted Accounting Principles.
According to the report, MicroStrategy was reporting its financial details using these accounting principles to calculate the amount of its Bitcoin purchases. However, the business intelligence firm failed to include “the impact of share-based compensation expense and impairment losses and gains on sale from intangible assets.”
Due to this exclusion, MicroStrategy failed to account for the effects realized from the high volatility of the crypto market. The GAAP rules are not designed to aid in reporting cryptocurrency transactions.
MicroStrategy has been investing heavily in Bitcoin. As of December 30 2021, the company had bought 124,391 BTC. This equates to more than $4.7 billion in value. The company reported these purchases using the non-GAAP principles. However, by doing this, MicroStrategy failed to include the “cumulative impairment losses” when calculating the cost, and it based the value of its BTC holdings on the prevailing market price during the last day of every period.
When MicroStrategy purchased Bitcoin in mid-2021, the company said that it “believes that these non-GAAP financial measures are also useful to investors and analysts in comparing its performance across reporting periods on a consistent basis.”
According to the SEC, MicroStrategy needs to make the necessary changes in its future filings and remove the adjustment so that its Bitcoin purchases will reflect the market volatility and changes in BTC’s price over time.
MicroStrategy’s shares dip
The recent report by the SEC comes when Bitcoin is facing a high level of volatility. The coin recently fell to lows of $35,000 after a major market sell-off. Due to its investments in Bitcoin, MicroStrategy’s shares have also declined.
At the time of writing, MicroStrategy’s share price had dropped by 17.84% to trade at a six-month low of $375. Bitcoin’s current price is also the lowest in six months, and it is almost 50% below its all-time high.
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