This article is relevant if you transact with Crypto-currencies and you use the NetSuite ERP System.
Background
While the crypto landscape navigates the turbulence of its 2023 “crypto winter,” significant developments are afoot. A pivotal declaration emerged from the US-based Financial Accounting Standards Board (FASB) on September 6, 2023. In an impending policy change, cryptocurrency will transition from being categorized as an intangible asset to an asset subject to fair market value measurement and reporting. This is a substantial departure from the previous framework, where a fall in crypto prices led to an irreversible asset impairment, precluding the possibility of recognizing gains if the asset recovers. The common sense is that crypto is volatile and today’s dip may represent tomorrow’s rebound.
Official references for this shift in accounting treatment can be found here:
- FASB Article: Official Reference
- FASB Archive Article in PDF
- Thomson Reuters Summary: Read More
Be advised: this rule is selective; it doesn’t blanket all cryptocurrencies. But rest assured, Bitcoin—cryptocurrency’s pioneering and predominant player—is indeed covered.
How does this announcement echo within the NetSuite community and our firm, Prolecto Resources? This regulatory change validates our decade-long foresight. Since 2012, we’ve architected license-free crypto tools with future readiness in mind. This FASB proclamation corroborates the wisdom behind our long-standing architectural approach.
Continued Insight
For those vested in the intersection of NetSuite and cryptocurrency, the following articles, as early as 2012, represent a historical evolution of representative thought leadership:
2012:Adding Bitcoin Global Payment Capacities to NetSuite
2013:Early Look at Bitcoin Integration within Financial System
2013:How To: Journal Entry a Bitcoin Trade for USD using NetSuite
2013:Capture Bitcoin Exchange Rates in NetSuite
2013:Step by Step: Accounting for Bitcoin as Foreign Currency
2014:CPE Credit: Bitcoin Talk to the AICPA: All the Way to the General Ledger
2014:Article: Accounting for Business Transactions in Bitcoin
2015:CIO Review Article: Bitcoin and Digital Currency Impacts on Core ERP & Business Systems
2017:Contrasting Bitcoin as an Asset versus a Foreign Currency in the NetSuite Accounting System
2020:Determine Bitcoin Crypto Gain / Losses Using NetSuite Tranche Applicator
2021:NetSuite Crypto Tranche Accounting Manager
2022:Automatically Update NetSuite for Any CryptoCurrency Price
2023:Capture Historical Crypto Prices in NetSuite
These articles represent nuanced ways one should consider emerging technologies and their potential economic impacts. The content articulates a strategy for NetSuite configuration and supporting application architecture, thereby ensuring superior long-term value and adaptability.
My 2017 article, Contrasting Bitcoin as an Asset versus a Foreign Currency in the NetSuite Accounting System, is where I argued for a specific accounting treatment for crypto within NetSuite, one that provides the most expansive scope for accounting and reporting the economic substance of the asset. I wrote the article in response to a SuiteWorld conference session where I was concerned that the NetSuite community would be misled. In light of the recent FASB announcement, this viewpoint demonstrates foresight.
Considerations for Crypto Handling in NetSuite
At my firm, we’ve had the unique opportunity to engineer NetSuite implementations for a wide spectrum of stakeholders in the crypto arena, spanning crypto miners, exchanges, and conventional businesses integrating crypto transactions into their operations.
From NetSuite’s vantage point, our primary principle for crypto implementation centers around treating it fundamentally as a currency. Despite cryptocurrencies not having yet reached a stage where they function as daily-use currencies, this accounting treatment grants us a significant advantage: the capability to account for cryptocurrencies at Fair Market Value (FMV). Consider the following:
- Revaluation: NetSuite’s native revaluation functionality lets us re-price selected assets at their current market rates, fulfilling our FMV accounting necessity. This revaluation leverages daily currency tables, which can be populated by external data feeds. For a deeper dive, review my 2022 article, Automatically Update NetSuite for Any CryptoCurrency Price. NetSuite automatically routes any realized gains and losses through the income statement. The elective nature of this feature has allowed us to guide clients in adhering to impairment-based accounting, in line with existing (and soon to be outdated) guidelines. A relevant resource would be my 2021 article, NetSuite Crypto Tranche Accounting Manager.
- Treatment as Cash: Our approach is to classify crypto assets under general ledger Cash account types. Although FASB allows crypto assets to be deemed either current or non-current, our method suits businesses using crypto either operationally or as long-term investments (more below). The “Cash” designation activates NetSuite’s reconciliation features. Typically, we create a parent GL category tagged “Crypto” with individual child GL accounts for specific cryptocurrencies. These can be further segmented by wallet types, giving us a streamlined balance sheet presentation modifiable via simple report formatting.
- As Investments: The crypto marketplace’s maturation has simplified acquisition and holding of specific cryptocurrencies. Most accountants will likely perceive these assets as liquid investments. Treating them as foreign currencies introduces the nuance that each transaction carries a set price, enabling accurate unit tracking. This approach significantly elevates the accounting practice above mere current asset accounting, which would otherwise necessitate a separate, external ledger for unit and price accounting.
- As a Payment Method: Cryptocurrencies can also serve to settle obligations. My 2019 article, Solve NetSuite Foreign Currency Cash Operations with the Prolecto Account Clearing Transaction Bundle, elaborates on how this is accomplished. The central idea is akin to how we handle foreign currencies in receivable and payable accounts, offering a seamless and unified accounting approach.
The FASB’s recent announcements have only reinforced our longstanding crypto accounting and reporting approach.
Advancing Client Competencies Through NetSuite’s Extensibility Capabilities
While the market offers third-party solutions catering to crypto accounting, these platforms primarily approach crypto transactions as ancillary to NetSuite. For instance, Bitwave has commendably established itself in this niche, complete with a NetSuite integration. However, Prolecto’s methodology diverges.
Our strategic intent is to leverage our license-free built-on-NetSuite accelerator bundles to sidestep recurring fees or third-party dependencies. We strive to lead our clients toward self-reliant operational excellence, minimizing their dependencies on external vendors. This philosophy resonates for clients entrenched in crypto-centric activities, including exchanges, payment providers, and mining operations.
We have tracked the arc of cryptocurrency as an emerging asset class since its incipient stages. This dual-focused approach—critical thinking about the asset class and its economic substance in conjunction with a deep understanding of NetSuite’s architectural framework—equips us to architect superior solutions and extend robust functionalities to our clients.
Our ability to synthesize fundamental insights and execute quality solutions produces a differentiation within the NetSuite ecosystem. We recognize a subset of NetSuite users who are yearning for the kind of directional leadership that Prolecto Resources can offer. We are an asset for ambitious organizations seeking highly competent players capable of delivering elegant application structures. Our ability to navigate the complex landscape of crypto accounting and operations is an illustration of our leadership.
If you found this article relevant, feel free to sign up for notifications to new articles as I post them. If you are looking to integrate crypto into your NetSuite system, let’s have a conversation.
Marty Zigman
Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.
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