FASB News

Congress Presses FASB to Tackle Accounting for Cryptocurrencies

A bipartisan congressional group has asked FASB to establish accounting standards for digital assets such as Bitcoin, stating that the lack of concrete rules have caused companies to book a balance sheet loss of about $1 billion for those assets. For example, MicroStrategy Inc., a business intelligence software provider, was holding 70,469 bitcoins as of December 31, 2020, valued at $2 billion at the time, yet the Bitcoin were reflected on its year-end balance sheet as having a carrying value of only $1.1 billion due to U.S. GAAP, according to a May 12 letter from seven house members, led by House Services Committee Member Representative Tom Emmer (R-Minn.), to FASB. The definition “of financial instrument should be updated to include digital assets such as virtual currencies,” the legislators said. “Recognizing that companies hold digital currencies for varying purposes, we believe the FASB should take into consideration how a company intends to use its bitcoin holdings when determining the appropriate accounting method.” The letter comes at a time when the market capitalization of bitcoin continues to surpass $1 trillion—larger than JPMorgan Chase & Co., Citigroup Inc., and Bank of America Corp. combined.

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Proposed Concepts on Revenues, Gains, Expenses, and Losses Affirmed

FASB affirmed the decisions it had proposed on non-binding concepts behind the definitions of revenues, gains, expenses, and losses—in disagreement with some of the Big Four and other accounting firms, which the board said misunderstood what the concepts are being used for. The discussion was specific to the elements in the financial statements, a new chapter being developed in the conceptual framework, the guide the board uses to develop U.S. GAAP. Specifically, the board affirmed the removal of the phrases “ongoing major or central operating” from the definitions of revenue and expenses and “peripheral or incidental transactions” from the definitions of gains and losses. The board agreed with staff accountants that removing the phrases would avoid emphasizing magnitude or centralized operations as the distinguishing feature between revenues and gains and expenses and losses. Therefore, the proposed definitions of revenues and expenses include all transactions that arise from delivering or producing goods, rendering services, and certain activities. “I agree with the staff recommendation to remove the phase, and I agree with their observation that the magnitude or frequency of certain transactions or events should not be the barometer for determining whether the transaction is or is not a revenue or expense,” FASB member Susan Cosper said.

PCAOB News

Framework to Determine Auditors it Cannot Fully Inspect or Investigate

On May13, the PCAOB voted unanimously to propose a framework when determining whether the board is unable to inspect or investigate a registered accounting firm in a foreign location completely because of positions taken by local authorities. This responds to the Holding Foreign Companies Accountable (HFCA) Act, which is intended to address the board’s inability to inspect auditors whose Chinese public company clients trade on U.S. stock exchanges. The board proposes to add new Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act, which would establish the following: the manner for determinations; the factors the board will evaluate, as well as the documents it will consider, to assess whether a determination is warranted; the form, public availability, effective date, and duration of determinations; and the process to modify or vacate the determinations. Comments are due by July 12.