As cryptocurrency investors rode the digital currency rollercoaster over the last several years, Claire M. Iacobucci was right alongside them.
As partner and director of audit and quality control for Kahn, Litwin, Renza & Co. Ltd., Iacobucci knew the volatile market made her difficult job that much harder.
In her words, it was “an accounting nightmare.” That’s because companies have reported the values of digital assets not based on their actual, current value, but the amount at which they were purchased, adjusted downward every time prices dipped. Take something such as Bitcoin, which has seen dramatic price fluctuations, and tracking those impairments for a company with dozens of coins – each of which has its own unique cost – could become all-consuming.
But relief is on the way, with new federal guidance that would make it easier for public and private companies – and their accountants and auditors – to report their digital assets in financial disclosures. The recommendations by the Federal Accounting Standards Board published on Oct. 12 call for classifying certain cryptocurrencies at fair value, rather than the “indefinite-lived, intangible asset” class that prior federal guidance had suggested.
While not officially adopted, the initial board recommendations, which were made unanimously, have sent shockwaves through the accounting sector.
“It’s a big sigh of relief,” said Mark Eckerle, team leader of digital currency and blockchain technology for Withum Smith +Brown PC, which took over Restivo Monacelli LLP in Providence last year. “It’s going to make everyone’s lives so much simpler and easier.”
That includes the accountants who calculate and study companies’ financial disclosures.
Rather than slog through a dizzying set of devaluations to confirm a cryptocurrency’s value as an intangible asset, under fair-value reporting, all they have to do is check the current market price.
Iacobucci also anticipates fewer “unpleasant conversations” with corporate audit clients whose draft disclosures did not follow the complex reporting guidance for intangible assets.
“I think the allure caused some companies with excess cash to invest [in cryptocurrencies] but they didn’t necessarily think about the accounting piece of it,” Iacobucci said.
These clients weren’t exactly overjoyed when Iacobucci told them their statements were wrong.
“It’s not a good mark for a company controller or [chief financial officer] to be told they have to make adjustments, especially that bring the value of their assets down,” she said.
The change would also make it easier for investors or members of the public to understand a company’s true financial standing, says Kevin Keane Jr., financial services manager for PKF O’Connor Davies LLP.
The prior classification of cryptocurrency assets could be “misleading,” making a company’s balance sheet look weaker than it actually was, Keane said.
Keane’s big corporate clients – he declined to identify them – were already excited by the prospect of boosting their balance sheets simply by changing the reporting standards, although exactly when the guidance will be codified is still unknown.
Large firms such as PKF O’Connor Davies, Marcum LLP and KLR plunged into the murky waters of cryptocurrency audits years ago, but smaller practices tended to steer clear. Accountants love rules, and some were leery of the lack of formal guidance around how to report digital assets, Keane said.
Among them was Feeney, Foster & Cavanagh CPAs LLC, which does not have any corporate auditing clients with digital assets, according to Boyd E. Foster Jr., a firm partner who also serves on the board of directors for the Rhode Island Society of Public Accountants.
But the FASB recommendations opened the door for Foster’s firm to consider taking on corporate clients with digital assets.
“Even though it’s still preliminary, I think we would be a lot more comfortable just having that kind of direction,” Foster said.
Keane also thought the new recommendations might boost corporate interests in buying and holding cryptocurrency.
“It gives people a better understanding of what they are getting into,” Keane said. “I see more people being involved and actively trading, and not just investment companies but also not-for-profits, foundations, whatever it may be.”
Iacobucci, though, was skeptical it would make much difference in whether a company decides to buy cryptocurrency, especially in New England where, in her firm’s experience, a smaller proportion of companies have digital assets on their balance sheets.
How volatile investments such as Bitcoin are performing at the time the final codification comes out may also influence the level of interest, she said.
“The ruling definitely will make it more acceptable and easier for companies to hold cryptocurrency, but at the same time, the recent fall of Bitcoin has kind of meant the luster is wearing off,” Iacobucci said. “If it comes back up, that could be a different story.”
