Tesla Bitcoin Buy Highlights Need to Fix US Accounting Rules
Tesla’s much-discussed recent decision to make a USD 1.5bn bitcoin (BTC) purchase continues to generate ripples in the American business pond – and has led some to claim accountancy rules should be updated to cover corporate crypto investments.
Source: Adobe/Natee Meepian
Industry observers are calling on the regulatory Financial Accounting Standards Board (FASB) to update the conventional accounting principles (known as GAAP), applicable for United States-based businesses.
Kell Canty, the CEO of digital asset tax and accounting software company Verady, told Bloomberg Tax that “[s]ooner rather than later is what the approach should be.”
Canty added that the matter had become “a pressing need for the financial accounting industry.”
The shortcomings of existing accounting standards have been pointed out by none other than the BTC-keen, Elon Musk-led company itself.
In its February 8 annual filing, Tesla warned investors that impairment to the value of its bitcoin holdings, which are legally accounted for as “intangible assets,” could have a negative impact on the company’s earnings.
Tesla wrote,
“Digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale, which may adversely affect our operating results in any period in which such impairment occurs.”
The firm also acknowledged there was “no guarantee that future changes in GAAP [rules] will not require us to change the way we account for” the “digital assets” it holds.
In a tweet, Caitlin Long, the CEO and Founder of the digital asset-focused bank Avanti, called on United States-based accountants to “get to work” with the FASB “to fix this.”
Long added that it was “nuts” that “investing in bitcoin via a fund results in more accurate accounting treatment than does investing in bitcoin itself.” The Avanti chief also pointed out the fact that existing standards place investments in crypto funds on a higher status level than companies’ direct purchases.
Long also added:
“Weird – if a company invests in a bitcoin fund, value gets marked up or down. But if it buys bitcoin directly, value [is] only marked down.”
However, some crypto investors disagreed with Long’s interpretation of the rules.
One commenter wrote,
“Why would companies want to take gains and have tax liabilities? I would much rather write it down and take earnings hits.”
Meanwhile, the FASB, the industry body that holds the key to facilitating crypto investments similar to that made by Tesla, is standing by its October 2019 decision not to create updated accounting rules for investments in crypto – despite the fact it is currently in the process of amending its rules on intangible assets.
Bloomberg Tax quoted the regulatory body as stating,
“The recent investment by one entity, in and of itself, would not have changed that evaluation. While digital currencies are not currently the focus of the research project, that topic could be considered as part of the research project in the future.”
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