Industry insiders: Coinbase may violate FASB accounting standards due to "customized accounting indicators"

Industry experts say Coinbase may face regulatory challenges in complying with new U.S. Financial Accounting Standards Board (FASB) accounting standards, which reportedly shift the accounting and disclosure of cryptocurrencies from a low-cost impairment model to a fair value model. The rules were agreed upon by the FASB in 2023 and will officially take effect in 2025. However, companies are allowed to adopt the standards early, and some companies, including Coinbase, have already followed this standard. The new standards are designed to provide more accurate valuations of digital assets by taking the latest value of digital assets rather than treating them as intangible assets, which has been the standard practice. Olga Usvyatsky, former vice president of research at Audit Analytics, noted that while the new regulations provide investors with more useful decision-making information, it also introduces volatility to corporate earnings. Companies typically mitigate this volatility by using non-GAAP in financial reporting. However, these cannot create individually customized metrics. Usvyatsky believes that Coinbase has done exactly that. Before adopting the new rules, Coinbase excluded cryptocurrency impairment costs from its adjusted EBITDA reconciliation. After adopting the rule, the company excluded fair value fluctuations, which Usvyatsky believes is also a tailored form of accounting because it ignores normal recurring operating expenses. Coinbase classified its cryptocurrencies into four new items on its balance sheet: investments, operating purposes, borrowed cryptocurrencies, and loan collateral. These assets are accounted for at fair value, which is determined differently and affects the recorded gains or losses when the market value changes. The company also revised the definition of adjusted EBITDA to adjust for gains and losses on cryptocurrencies held for investment, arguing that these do not represent normal recurring operating expenses required for its business. Usvyatsky said the SEC had previously questioned the company's non-GAAP adjustments, specifically sending letters to Bit Digital and MicroStrategy asking about similar impairment eliminations in financial reports. In a follow-up letter to MicroStrategy in December 2021, the SEC asked the company to remove "the adjustment for Bitcoin impairment charges in non-GAAP measures in future filings." (CryptoSlate)