But after last year’s initial hype, the corporate balance sheet clamor for bitcoin has slowed to a crawl, likely due in part to complex accounting rules. For observers and investors in public companies holding bitcoin, disclosure rules are also vague and deter transparency. Tesla recently left a mystery in its wake as it sold 75% of its initial $1.5 billion bitcoin stake, leaving questions about its initial cost basis and disposition unanswered. To be fair, such transparency is by no means required under current accounting rules.
According to today’s accounting standards, bitcoin, which is considered an “intangible asset,” is disclosed in a markedly different way than typical investments such as cash, stocks, or bonds. Publicly traded firms are required to incur impairment charges against their bitcoin purchases whenever prices dip below the initial cost basis. In other words, and especially for volatile assets like bitcoin and other cryptocurrencies, impairment ends up harming the bottom line of public earnings reports and requires companies to hold these assets on their balance sheets at their lowest valuation since the point of purchase.
‘Enforcement 40’ for 2020
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