I’ve previously blogged about some of the uncertainties involved in how to account for digital assets. In light of those uncertainties and Bitcoin’s volatility, it’s not surprising that companies with investments in Bitcoin or other digital assets might want to present non-GAAP financial data that backs out the impact of swings in the value of those assets on their financial results.
Yeah, well, good luck with that, because the Corp Fin Staff apparently is having none of it. Here’s an excerpt from a Bloomberg Tax article detailing the back and forth between the Staff and MicroStrategy on that company’s unsuccessful efforts to back out Bitcoin from its non-GAAP income statement:
For the quarter ending Sept. 30, 2021, MicroStrategy reported a net loss of $36.1 million. Adding back in its share-based compensation expense and the impairment of its digital assets made the company’s unofficial, or non-GAAP, income flip to $18.6 million, its filing shows. MicroStrategy did not immediately respond to a request for comment.
The company told the SEC it used non-GAAP measures to give investors a fuller picture of its finances. If the company only showed declines in value, it would give “an incomplete assessment” of its Bitcoin holdings that would be “less meaningful to management or investors” in light of the company’s strategy to acquire and hold Bitcoin. “We further believe that the inclusion of bitcoin non-cash impairment losses may otherwise distract from our investors’ analysis of the operating results of our enterprise software analytics business,” the company wrote.
The SEC disagreed. In a letter dated Dec. 3, the market regulator told MicroStrategy it objected to the adjustment and told the company to remove it from future filings. In its Dec. 16 response, MicroStrategy said it would comply.
-John Jenkins, TheCorporateCounsel.net January 24, 2022