The California Society of CPAs is pushing for clarity in accounting and disclosure rules regarding cryptocurrencies, citing a lack of specific guidance within U.S. GAAP, the standard accounting protocols followed in the U.S.

The 54-member committee’s concern is the divergence in reporting methods utilized by companies who itemize cryptocurrencies on their financial statements and whether the varying approaches reflect the nature and risks of holding cryptos.

This accounting confusion is rooted in the varying ways digital assets are viewed, where, depending on the circumstance, cryptocurrencies may be recorded at “lower of cost or market,” at fair value, or as intangible assets. This is because on a balance sheet cryptocurrencies can be reported as anything from a commodity to an investment or even be counted as working capital, according to Andrew Parrish co-founder of Alternate Tax Solutions.

Yet, the Financial Accounting Standards Board notes that many institutional interpretations of digital assets instead define cryptocurrencies as indefinitely-lived intangible assets under ASC 350, or, Intangibles-Goodwill and Other. But this is far from the consensus, and will only become more nebulous as digital assets find their way onto more companies’ balance sheets.

“We believe the usage of cryptocurrencies will not diminish over time and will continue to expand in both volume and new fields of application,” said Nancy Rix, Chair of CalCPA’s accounting principles and assurance services committee in a letter to the FASB.

CalCPA believes that the FASB currently pursues a classification model analogous to accounting for foreign currencies. While added rules would address currencies that have an active market and are held by an entity as a medium of exchange or investment.

 “We anticipate it will not be long before major public companies start using cryptocurrencies, as illustrated by JP Morgan’s decision to issue JPM Coin in February 2019," Rix said.

For now, however, Parrish said that GAAP policies accurately reflect the risks associated with holding cryptocurrencies.

“A balance sheet is a snapshot and every asset carries risk of changing price tomorrow. Even banks can go bankrupt," Parrish said.

“If Bitcoin is $100,000 today, and $90,000 tomorrow, you just have to write down the loss,” Parrish said. 

Where an asset is accounted for on the books determines not only its value relative to other liabilities and equity, but also whether it is subject to impairment cost, whether it will affect income statements and cash-flow statements.

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