Good morning,
It’s time that we start talking about accounting and crypto as the digital currency seems to be on a roll.
Macrina Kgil, CFO at Blockchain.com recently told me the company has crypto on its balance sheet. Coinbase announced on August 19 it planned to buy $500 million worth of crypto and allocate 10% of its quarterly profits to the portfolio. Meanwhile, Walmart is hiring a crypto expert, and Amazon is seeking a digital currency and blockchain product lead for its payments acceptance and experience team.
The accounting of crypto isn’t exactly crystal clear. So, for some insight, I had a conversation with Russ Porter, the newly named CFO and SVP of strategy, technology, and analytics at the Institute of Management Accountants (IMA). Porter, a certified management accountant, previously worked at IBM for almost 30 serving in financial leadership roles.
“One of the challenges is clearly going to be the lack of definitive guidance from either the SEC or the FASB [Financial Accounting Standards Board] about the accounting treatment of crypto,” he told me. “The AICPA [Association of International Certified Professional Accountants] has come out with good guidance,” Porter says. It offers “non-authoritative guidance” on how to account for and audit digital assets, according to the organization’s report.
“But I have no doubt we’re going to see a little bit of divergence in practice based on the various opinions and interpretations of what crypto really is,” Porter says. “As of right now, the default treatment is as an intangible asset, which we’ve got clear guidance on how to treat those. But over time, some companies are going to opt to treat it as a cash equivalent in the short term.” There may be pitfalls in every direction, such as devaluation, he told me.
“Many of the cryptocurrencies out there are very volatile,” Porter explains. “And so, at any point in time, the price at the end of a reporting period for a company might trigger permanent impairment of the crypto assets they hold. That wouldn’t be revitalized until the asset was disposed of.” And if companies choose to treat crypto as a cash equivalent, “the fair value accounting, the mark to market, if you will, could result in some very volatile swings in income, depending on the size of the portfolio,” he says.
My colleague Shawn Tully has been documenting Tesla’s crypto journey since Elon Musk’s electric vehicle company disclosed in its 10K released in February that it had purchased $1.5 billion in Bitcoin. Shawn wrote in June: “The FASB classifies Bitcoin and other cryptocurrencies as an ‘indefinite lived intangible assets.’ That designation means that companies holding Bitcoin must take a charge called an ‘impairment’ in quarters where the market price falls below what Tesla paid but can’t take a gain when their value rises above their acquisition cost.”
And Tesla has been on a roller coaster ride with Bitcoin. The company’s “realized and paper profits soared to over $1.4 billion at Bitcoin’s $65,000 peak on April 14, only to virtually disappear at the signature cryptocurrency’s recent low of $28,894 in late June,” Shawn wrote in his latest article. The BTC investment went underwater for a time on June 22, but when Bitcoin hit $50,000 on the morning of Aug. 23, Musk’s profit had actually jumped by 250%.
Porter says he could see either treating crypto as an intangible asset or cash equivalent becoming the standard over time. “The CFOs and controllers that I work with, and they head up many public companies, they’re all aware of the implications and the risks,” he says. “They’re all taking steps to make sure that they’ve got that transparency within their financial statements, and that they’re following the established guidance.” But there may be a need for upskilling in blockchain technology, Porter says.
“I do think there is a level of education and involvement that CFOs, treasurers, controllers, and their staff should all be pursuing,” he says.
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
Big deal
There's more spending than in 2020, but almost most half of individuals between 18 and 34 say they've increasingly opened their wallets in 2021, a new report by Clutch found. However, the report also found 50% of respondents ages 35 and 54 said their online spending has increased in 2021, compared to 43% of ages 18 and 34 and 37% of ages 55 and older. The report also explores what different generations are spending their money on. The B2B ratings and reviews platform's data is based survey of 351 individuals.
Courtesy of Clutch
Going deeper
Mergers and acquisitions (M&A) in North America are continuing at a "near-record pace," according to a S&P Global Market Intelligence report released on August 26. In Q2 of 2021, companies announced 5,712 deals with targets in the U.S. or Canada reaching a combined disclosed value of $604.52 billion, the report found. The number of deals was slightly lower than the 5,808 announced in Q1—"the highest quarterly total this century," the report noted. Compared to $287.5 billion in the first half of 2020, the disclosed value of M&A deals in the first six months of 2021 totaled $1.2 trillion.
Leaderboard
Andrew Krasner was named CFO at Willis Towers Watson, a global advisory, broking, and solutions company. Krasner returns to the company after serving as CFO of AssuredPartners, Inc. His career with Willis Towers Watson began in 2009, serving as global treasurer and head of mergers and acquisitions, and senior vice president of Willis Towers Watson Securities. Krasner succeeds Michael Burwell in the CFO role, who is taking a senior role in the medical and data analytics industry, according to the company.
Glen Bunnell was named treasurer and principal accounting officer and CFO at Micron Solutions, Inc., a diversified contract manufacturing organization, effective September 7, 2021. Bunnell has over 30 years of financial management in the life sciences, technology, and manufacturing industries. He most recently served as CFO at BostonSight, a non-profit healthcare organization. Bunnell also served as VP of finance at Charles River Laboratories.
Tyler Cook was named CFO at Codagenix Inc., a clinical-stage synthetic biology company. Cook joins Codagenix from Samus Therapeutics, where he served as CFO. He also served as SVP of finance, administration and information technology at Ziopharm Oncology.
Overheard
"There’s generally been pretty positive crypto sentiment recently: NFTs have helped lead the revival, and the crash from May is further in the rearview mirror."
—Sam Bankman-Fried, chief executive officer of crypto exchange FTX, as reported by Fortune.
