Coinbase could face regulatory challenges over alleged ‘tailored accounting metrics’ under new FASB rules

Coinbase, a leading cryptocurrency exchange, may face regulatory challenges in relation to its compliance with new accounting rules set by the Financial Accounting Standards Board (FASB). These new rules, which shift the accounting and disclosure for crypto assets to a fair-value model, are set to officially take effect in 2025, though some companies, including Coinbase, have already adopted them.

The aim of these new standards is to provide a more accurate valuation of digital assets by reflecting their most recent value, rather than treating them as intangible assets as was previously done. Under the previous model, companies recorded digital assets at their historical acquisition prices and assessed for impairment each reporting period, only recognizing declines in value and not subsequent increases. However, the new rule allows companies to revalue these assets at fair market value, capturing gains and losses more accurately.

However, accounting experts have raised concerns about Coinbase’s compliance with these new rules. Olga Usvyatsky, a former vice president for research at Audit Analytics, argues that Coinbase has used tailored accounting metrics that omit normal, recurring operating expenses. Before adopting the new FASB rule, Coinbase excluded crypto impairment costs from its adjusted EBITDA reconciliation. And after the rule’s adoption, the company excluded fair-value volatility, which Usvyatsky contends is also a form of tailored accounting.

Usvyatsky points out that the Securities and Exchange Commission (SEC) has previously challenged firms’ non-GAAP adjustments and has ordered companies to remove similar adjustments regarding impairment charges. It remains to be seen whether Coinbase’s handling of its accounting metrics will prompt regulatory scrutiny.

While some believe that there may be consequences for Coinbase, others downplay the risk. Francine McKenna, author of The Dig, suggests that the exchange is likely following advice from reputable accounting firm Deloitte, which is unlikely to mislead the company.

Coinbase has yet to respond to requests for comment regarding these regulatory challenges.