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 have 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 completed so.
New accounting guidelines
The brand new requirements goal to supply a extra correct valuation of digital belongings by capturing their most up-to-date worth fairly than treating them as intangible belongings, which has been the usual follow. This modification was prompted by requests from firms like MicroStrategy and Tesla, which maintain important quantities of unstable crypto.
Underneath 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 honest market worth, reflecting positive aspects and losses extra precisely.
Olga Usvyatsky, former vice chairman for analysis at Audit Analytics, famous that whereas the brand new rule supplies buyers 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 studies. Nevertheless, these should not create individually tailor-made metrics. Usvyatsky argued that Coinbase has completed 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 also be a type of tailor-made accounting, because it omits regular, recurring working bills.
Coinbase has categorized its crypto into 4 new objects on its steadiness sheet: for funding, for operational functions, borrowed crypto, and collateral for loans. These belongings are accounted for at honest worth, with variations in how this worth is set, affecting the positive aspects or losses recorded when market values change.
The corporate additionally revised its definition of adjusted EBITDA to regulate for positive aspects and losses on crypto held for funding, arguing these don’t characterize regular, recurring working bills essential for its enterprise.
In accordance with Usvyatsky, the SEC has beforehand challenged corporations’ non-GAAP changes, notably sending letters to Bit Digital and MicroStrategy inquiring about comparable impairment removals in monetary studies.
The SEC’s follow-up letter to MicroStrategy in December 2021 ordered the corporate to take away “adjustment for Bitcoin impairment expenses in… non-GAAP measures” in future filings.
Others downplayed the danger of penalties. The Dig creator Francine McKenna informed the newswire that the trade is “following the most effective 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.