Dive Brief:
- Rep. Brad Sherman — a California Democrat who was dubbed Congress’ leading crypto skeptic by the Los Angeles Times and has sought to ban the asset class — has pushed back against the Financial Accounting Standards Board’s proposal to update accounting guidance for certain digital assets.
- Sherman was one of the 78 stakeholders who gave feedback to the FASB in the public comment period that ended Tuesday. But unlike a number of the crypto companies who voiced support, Sherman asserted that cryptocurrencies, except for tokens and stablecoins backed by the U.S. dollar or other major world currency, do not have a place on company balance sheets.
- “Cryptocurrencies remain highly volatile and speculative wagers that are subject to rapid and highly unpredictable price swings... The inclusion of such volatile cryptocurrencies on a company's balance sheet can make financial reports and assessments regarding the company's financial health misleading to investors,” Sherman wrote in an April letter to the FASB.
Dive Insight:
Many crypto companies have pushed for the current FASB project that has taken up crypto accounting standards. Existing standards have been interpreted to mean that crypto should be treated as intangible assets and impaired to the lowest observable value within a reporting period. In this scenario they have to be carried at cost, CFO Dive previously reported.
Under the newly proposed approach that the FASB will soon be debating, companies would report the fair value of in-scope crypto assets based on its price level on a given exchange at the end of the reporting period. Companies would be required to “present crypto assets measured at fair value separately from other intangible assets in the balance sheet,” according to the proposed accounting standards update.
Sherman’s letter doesn’t explicitly oppose the FASB proposal. In fact, he writes that he supports the standard setter’s proposal to require companies to recognize the cost of acquiring crypto-assets. However, he urges the FASB to “adopt a clear accounting principle that cryptocurrencies should not be on the balance sheet and that amounts paid to acquire cryptocurrencies should be charged to income as an expense.”
The approach outlined in Sherman’s letter “essentially would scrap the proposed accounting standards update,” Jack Castonguay, an accounting professor at Hofstra University in New York, wrote in an emailed response to questions from CFO Dive. “His proposal effectively treats the purchase of crypto assets like a purchase of food, entertainment, or electricity. Essentially, his proposal wants crypto assets treated as if they have no potential for future value.”
Sherman, a ranking member of the House Financial Services’ Subcommittee on Capital Markets, has long been a staunch crypto critic. In a December Bloomberg interview he said crypto was not yet a currency, dismissing it as an “electronic pet rock,” and stated concern that it helps people “defeat financial laws.”
More recently, he raised concerns that the crypto industry doesn’t pay its fair share of taxes. In a June 5 letter co-signed by Sherman and Rep. Stephen Lynch, a Massachusets Democrat, to Secretary of the Treasury Janet L. Yellen and Internal Revenue Service Commissioner Daniel I. Werfel, the authors asserted that the industry has been “a major source of tax evasion and a significant part of the nation’s tax gap.” The letter calls for tax reporting regulations for crypto brokers to “bring the industry into compliance.”
Sherman’s office did not respond to a request for comment.
