Accounting Standards

Tesla’s Bitcoin investment exposes accounting flaws

The FASB says it will stand by its original decision not to update rules regarding digital assets

Tesla’s $1.5bn Bitcoin investment has exposed limits to rules surrounding cryptocurrency accounting.

Elon Musk’s major investment on Monday (8 February) highlighted the fact that there are currently no rules for digital assets in mainstream US accounting principals.

In fact, the Financial Accounting Standards Board (FASB) formally rejected at least three requests to adjust the rules on the grounds that the situation is not common enough.

The requests followed software company MicroStrategy’s December issuance of $650m in convertible bonds to buy and hold bitcoin, and Paypal’s October revelation that its customers can hold cryptocurrency in their accounts.

However, Kell Canty, CEO at the digital asset tax and accounting software company Verady, told Bloomberg Tax that these investments are “not a flash in the pan”.

He added: “Sooner rather than later is what the approach should be. It becomes a pressing need for the financial accounting industry.”

The issue occurs in the volatility of Bitcoin as an asset, making it too difficult to properly account for as an intangible asset on the investor’s balance sheet. 

In an annual filing, Tesla recognised that, as assets can only be devalued under accounting rules, “these charges may negatively impact” the group’s profitability even if the “overall market values of these assets increase”.

Despite the exposure to accounting limits regarding digital assets, the FASB stood by its earlier decisions, stating that “the recent investment by one entity, in and of itself, would not have changed that evaluation”.

The board added in a statement, via Bloomberg Tax: “While digital currencies are not currently the focus of the research project, that topic could be considered as part of the research project in the future.” 

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