Coinbase may face regulatory challenges over its compliance with new FASB accounting guidelines that shift the accounting and disclosure for crypto to a fair-value mannequin from a cost-less-impairment mannequin, MarketWatch reported on June 24, citing accounting specialists.
The principles had been agreed upon by the FASB in 2023 and can formally take impact in 2025. Nevertheless, corporations are allowed to undertake the requirements early, and a few, together with Coinbase, have already carried out so.
New accounting guidelines
The brand new requirements intention to offer a extra correct valuation of digital belongings by capturing their most up-to-date worth reasonably than treating them as intangible belongings, which has been the usual apply. This modification was prompted by requests from firms like MicroStrategy and Tesla, which maintain vital quantities of risky crypto.
Below the earlier mannequin, firms needed to report digital belongings at their historic acquisition costs and assess for impairment every reporting interval — recording any decline in worth however not recognizing subsequent will increase. The brand new rule permits firms to revalue these belongings at truthful market worth, reflecting good points and losses extra precisely.
Olga Usvyatsky, former vice chairman for analysis at Audit Analytics, famous that whereas the brand new rule offers traders with extra helpful data for making choices, it additionally introduces volatility into firm earnings.
Firms usually mitigate such volatility by utilizing non-GAAP measures of their monetary reviews. Nevertheless, these should not create individually tailor-made metrics. Usvyatsky argued that Coinbase has carried out exactly that.
Non-GAAP changes
Earlier than adopting the brand new rule, Coinbase excluded crypto impairment prices from its adjusted EBITDA reconciliation. Following the rule’s adoption, the corporate excluded fair-value volatility, which Usvyatsky contends can be a type of tailor-made accounting, because it omits regular, recurring working bills.
Coinbase has categorized its crypto into 4 new gadgets on its steadiness sheet: for funding, for operational functions, borrowed crypto, and collateral for loans. These belongings are accounted for at truthful worth, with variations in how this worth is decided, affecting the good points or losses recorded when market values change.
The corporate additionally revised its definition of adjusted EBITDA to regulate for good points and losses on crypto held for funding, arguing these don’t signify regular, recurring working bills vital for its enterprise.
Based on Usvyatsky, the SEC has beforehand challenged corporations’ non-GAAP changes, notably sending letters to Bit Digital and MicroStrategy inquiring about related impairment removals in monetary reviews.
The SEC’s follow-up letter to MicroStrategy in December 2021 ordered the corporate to take away “adjustment for Bitcoin impairment prices in… non-GAAP measures” in future filings.
Others downplayed the danger of penalties. The Dig creator Francine McKenna advised the newswire that the alternate is “following the perfect recommendation its billions should purchase” from Large 4 accounting agency Deloitte, which is unlikely to mislead the corporate.
Coinbase didn’t reply to CryptoSlate’s request for remark as of press time.
