Industry insiders: Coinbase may face regulatory challenges due to "custom accounting metrics."
ChainCatcher news, according to CryptoSlate, industry experts indicate that Coinbase may face regulatory challenges in complying with the new Financial Accounting Standards Board (FASB) accounting standards in the United States. It is reported that the standard shifts the accounting and disclosure of cryptocurrencies from a low-cost impairment model to a fair value model.These rules were agreed upon by FASB in 2023 and will officially take effect in 2025. However, companies are allowed to adopt these standards early, and some companies, including Coinbase, have already followed this standard.The new standards aim to provide a more accurate valuation of digital assets by capturing 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, pointed out that while the new regulations provide investors with more useful decision-making information, they also introduce volatility to company earnings. Companies typically mitigate this volatility by using non-GAAP measures in their financial reports. However, these cannot create separately customized metrics. Usvyatsky believes that Coinbase has precisely done this.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 form of customized accounting as it ignores normal recurring operating expenses.Coinbase categorizes its cryptocurrencies on its balance sheet into four new items: investments, operational purposes, borrowed cryptocurrencies, and loan collateral. These assets are accounted for at fair value, with the determination of fair value varying, affecting the recorded gains or losses when market values change.The company also revised the definition of adjusted EBITDA to account for the gains and losses of cryptocurrencies held for investment, believing that these do not represent the normal recurring operating expenses required by its business.Usvyatsky stated that the SEC had previously questioned the company's non-GAAP adjustments, particularly sending letters to Bit Digital and MicroStrategy inquiring about similar impairment eliminations in their financial reports. In a follow-up letter to MicroStrategy in December 2021, the SEC requested that the company remove "the adjustment for impairment expenses related to Bitcoin in non-GAAP measures" in future filings.
