As the digital currency trend continues to pick up once again, many new investors are looking to buy cryptocurrency. Online cryptocurrency trading is particularly strong these days, with recovering prices reaching heights not seen in well over a year, now.
However, there are also many who believe that the crypto trend still lacks clarity, particularly in areas of accounting. California’s Society of CPAs is an excellent example, and the Society is working hard to push new accounting and disclosure rules regarding cryptos. According to them, there is a major lack of specific guidance in the US GAAP.
The Society of CPAs remains concerned
The Society’s committee, comprised of 54 members, expressed its concern regarding the divergence in reporting methods that are being used by cryptocurrency-using companies. Their financial statements do not represent a clear enough state of things, according to the CPAs. Additionally, they are also concern about whether or not varying approaches reflect the true nature of cryptos, as well as the accompanying risks.
It is believed that the accounting confusion comes from different ways in which digital currencies are viewed. They are simply viewed differently depending on the circumstances, and as such, they might be recorded as intangible assets, at ‘lower of cost or market,’ or at fair value. As the regulators have yet to properly classify cryptos, they are often reported as anything, from an investment to a commodity. Some even view them as working capital, which further complicates the situation and increases confusion.
While it is becoming more and more easy to buy cryptocurrencies, defining them is quite a different matter. According to the Financial Accounting Standards Board, institutional interpretations of digital assets also view cryptos as indefinitely-lived intangible assets. However, this is still a long way from the consensus, and there is a concern that the situation is likely to become even more complex as more companies start turning to cryptocurrencies, and delivering their own views on how the coins should be classified.
Cryptos will only see more usage and applications
CalCPA’s Chair of Accounting Principles and Assurance Services Committee, Nancy Rix, stated that they believe that the usage of digital currencies is not going to drop over time. In fact, they believe that it will grow, and expand in fields of application and volume alike. CalCPA seems to believe that the FASB is working on a new classification model, one that will be analogous to accounting for foreign currencies.
The new rules are likely to address currencies that are already a part of an active market and are held by entities acting as a medium of investment or exchange. Rix also pointed out that it is likely only a matter of time before major public firms start using cryptos openly, similarly to JP Morgan’s decision to launch JPM Coin earlier this year. There are already rumors that many large companies are working on their own coins, and this is only expected to increase, as others decide to join online cryptocurrency trading.
According to Alternate Tax Solutions’ co-founder, Andrew Parrish, the GAAP policies applied in the US reflect the crypto-related risks quite accurately. He claims that balance sheets are a snapshot, with every asset on them having the potential to see major price changes at any time. He also points out that it is even possible for banks to go bankrupt. In other words, if Bitcoin happens to see a major drop at any given time, all that companies will be left with is having to write down the loss and move on.