In the last few months, cryptocurrency, particularly Bitcoin, has been at the forefront of discussion in the world of finance. Morgan Stanley became the first large bank to allow clients to invest in three funds that enable ownership in bitcoin. Elon Musk and Tesla showed their support for Bitcoin by announcing that they would accept payment in bitcoin and purchased $1.5B in Bitcoin in February 2021.
With cryptocurrency showing increased use throughout the world, what effect this would have on real-world financial transactions? If a business were to purchase bitcoin or accept it as a form of payment or donation, how would they account for the asset?
The current guidance under FASB notes that cryptocurrencies should be recorded as an intangible asset with an indefinite life under ASC 350 Intangibles — Goodwill and Other. Under this guidance, the asset is initially recorded at cost. While the value of the assets cannot be increased from this cost, the valuation of the asset should be assessed for impairment on at least a yearly basis.
While FASB currently has no plans to update the accounting treatment of cryptocurrency, future guidance can certainly change what is currently in place. In future years, if cryptocurrencies like Bitcoin are used more often in everyday transactions, additional methods of accounting for these assets could be used. In 2019, the AICPA presented non-authoritative guidance on how the nature of an asset changes based on individual circumstances, and with it, can dramatically change how these are accounted for. While the applications of these methods are not allowed under GAAP, they at least provide a look at how cryptocurrencies may end up being recorded and recognized going forward.