The US Securities and Exchange Commission (SEC), on Thursday, rejected MicroStrategy’s accounting method for bitcoin in its earnings reporting. This gave a direct blow to the business-intelligence software company’s stocks. As such, MicroStrategy’s shares have been falling in tandem with the price of BTC. The company’s shares have been down by 24.7%.
SEC in the filing noted the software company’s response to prior comment 5. It objected to the adjustment for bitcoin impairment charges in the non-GAAP measures. The watchdog told MicroStrategy to revise and remove the adjustment in future filings.
Companies, as per the nonbinding guidance from the American Institute of CPAs, should classify the currency as an intangible asset. It has been outlined in the ASC 350. Companies that don’t qualify as investment firms record cryptocurrency at historical cost. It adjusts if the value falls. Companies can’t revise the value back up if their holdings get written down or impaired.
But bitcoin is a volatile asset, and as such, on-the-books value can only be recorded as shrinking and never growing. The downward swing in the popular crypto asset’s value hit MicroStrategy’s bottom line hard. The company reported a net loss of $36.1 million for the quarter ending September 30, 2021. The filing shows that the impairment of its digital assets made MicroStrategy’s unofficial income flip to $18.6 million.
However, the enterprise software maker told SEC that it had used non-GAAP measures to give investors a fuller picture of its finances. If it had only highlighted declines in value, it would have given an incomplete assessment of its BTC holdings. And it would have been less meaningful to the management or investors.
MicroStrategy believes in the inclusion of bitcoin non-cash impairment losses, which may otherwise distract from their investors’ analysis of the company’s operating cost. But SEC disagreed and told MicroStrategy to remove it from future filings.