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Private Companies Don’t Want to be Struck Out of Crypto Accounting Rules Being Developed

September 26, 2022 

Private Company Council (PCC) Chair Candace Wright on Sept. 22, 2022, said new accounting rules the FASB is developing for cryptocurrencies should be applicable to both public and private companies “since there is no guidance.”

Wright, a director with Postlethwaite & Netterville, a Louisiana-based accounting and business advisory firm, told board members she supported “including the private companies as you move forward with this [project].” Her remarks piggybacked on questions raised by other PCC members about how broad a reach the crypto rules would have.

In early September, the FASB decided to limit rules it plans to develop to cryptocurrencies that are fungible, deemed intangible, reside on a blockchain or distributed ledger, secured through cryptography, and do not meet the definition of a contract.

“It is a pretty narrow scope so there will be a number of crypto assets that could be outside of the scope but that’s because those crypto assets may very well be financial assets,” a FASB staff member explained. “There are a number of crypto assets that we are observing that give you rights to goods or services from a counterparty,” he said. “So it’s hard to really understand exactly what the percentage is or populations are, but we’re seeing the evolution of having these crytpo assets be more akin to traditional assets that already have current accounting. What we’ve described here we think is the stuff that falls out of what is traditionally accounted for.”

The PCC is an 11-member panel that works with the FASB to develop accounting rules and/or amendments in GAAP for private companies, the largest business demographic in the U.S. The panel can make recommendations that private companies be excluded from certain rules, or request that complex guidance be simplified. Further, the PCC can recommend whether private companies should get an additional year or longer to adopt new accounting standards.

In general the FASB, which is still in the early-stages of the project, expects that the guidance would cover most of the value that is trading by market cap, the discussions indicated.

“If you go to some website that tracks crypto market cap, I would say that certainly by size this would cover the vast majority of value that’s trading,” FASB Vice Chair James Kroeker said. “In terms of number of potential things that might be encoded with cryptography and called crypto items – harder to say, but for those, for example, NFTs or other things there’s probably already guidance if you have underlying rights to other assets,” he said.

The guidance would exclude certain so called stablecoins, Kroeker added. “Now if it’s really a stablecoin and continues to trade consistently at a dollar, for example, then we don’t need a lot of guidance if it really is stable, so if it becomes unstable certainly still some impairment guidance,” he said. “But again by prevalence of economic phenomena it seems to get most of them.”

Among questions the board was asked included whether there were plans to include other digital assets such as NFTs into a future project. “Just wondering based on how the scope was set for things that were sort of identifiable digital assets that are outside of the scope if there’s been any sort of discussion around when those would potentially come onto the plate for a potential research project,” Douglas Uhl, principal team leader, corporate accounting policy at Chick-fil-A, Inc., asked.

Discussions to date have not shown a pervasive need, staff said.

“By definition they’re nonfungible,” FASB Chair Richard Jones explained. “So whether it’s on a blockchain or not, how do you feel about fair valuing baseball cards, and comic books, and art work and moving on to digital copies – do you want the Wu-Tang Clan fair valued,” he said. “I think it gets into broader issue because the common factor there is a unique piece of intellectual property very often.”

Jones said the board also has a project on its research agenda to explore fair valuing commodities and thus there may be some overlap.

[Thomson Reuters]