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Monday, December 16, 2013

No GAAP for Bit Coins FASB Discussions Indicated

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 No GAAP for Bit Coins FASB Discussions Indicated

   

Would “Bit Coins” potentially be a functional currency under which financial statements can be prepared? This was a question posed to the Financial Accounting Standards Board during the board’s meeting with its Small Business Advisory Committee (SBAC) Nov. 7.  

As an auditor I thought I’d better start asking, said one SBAC member: what’s the accounting for [bit coins]? Is it a cash? is it an investment? I believe it is a medium of exchange, is there any guidance on what the accounting is for bit coins?  

There is no generally accepted accounting principles (GAAP) that specifically addresses financial reporting for bit coins, which means this would fall under other comprehensive basis of accounting (OCBOA), FASB members who weighed in said.  

Growing Popularity.  

“Bit coins” is a type of virtual currency, which loosely put, is created when a complex mathematical algorithm is solved using high power computers.  It seems like overnight bit coins have become legitimate.   

The SBAC discussions also indicated that purchases can also be made on Amazon with bit coins so there’s a real market for them and they have real value.  “There’s the reporting side in the realm of them being a sort of commodity, an asset, but it’s not a superefficient process yet, but it’s getting better every day,” an SBAC member said.  

There are two sides to bit coins (no pun intended): bit coin mining, which is the creation of bit coins and the commerce side of it.  There are also people in the business of mining with high powered computers and creating them--and there are a limited number of them.  

The popularity of bit coins is heighted by their lack of traceability, attractive for illicit activity but also increasingly attractive for legitimate business as well.   “So they’re using it a lot and therefore have created the demand but that also creates an avenue for legitimate businesses to also use this thing that now has value for legitimate businesses as well,” an SBAC member said.  

According to published reports in November, a Florida customer purchased a $103,000 Tesla from Lamborghini Newport Beach using 91.4 bit coins.  Reportedly, more sales of Lamborghini’s will ensue -- from customers using bit coins.  

Attracting Government Scrutiny.  

The bit coins market has grown enough to attract government scrutiny.  The government’s spending a lot of time investigating and trying to understand how they can regulate or monitor it, the SBAC discussions revealed.  

“One of the big issues in the tax side of the world is there’s transactions going on that people aren’t paying taxes on—there are numerous concerns about this but it is a real thing happening,” an SBAC member said.  

One member said bit coins trading may be right under our noses. “If you think about it – this is happening among perhaps among a lot of children of yours in this room, because they buy and sell virtual currency for video games,” he said.  

   

By Denise Lugo Staff Correspondent @Bloomberg BNA (dlugo@bna.com)  

   

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