MicroStrategy's financial report exposed by SEC, stock price falls to a one-year low along with Bitcoin

The U.S. Securities and Exchange Commission (SEC) on the 21st dealt a blow to the prominent business intelligence company MicroStrategy, which embraces Bitcoin as a corporate asset, stating that its financial reporting failed to adequately reflect the impact of Bitcoin volatility to investors, thus rejecting the financial statement.

In addition to the impact from the SEC, the price of Bitcoin continues to decline. MicroStrategy's intraday stock price hit a new low of 365.98 on the 21st, closing at 375.89 USD, down 17.84%.

MicroStrategy did not respond to the SEC's request to "return" its financial reports.

As of December 30, 2021, MicroStrategy has purchased 124,391 Bitcoins, with a total purchase value of approximately 3.8 billion USD since August 2020, now valued at over 4.7 billion USD.

According to a report from Bloomberg, information released by the U.S. Securities and Exchange Commission on Thursday shows that MicroStrategy used non-GAAP indicators to calculate the amount of Bitcoin purchased. However, these rules are not designed to report the value of cryptocurrencies as they do not include "the impact of stock-based compensation expenses and impairment losses, as well as gains on the sale of intangible assets," violating the SEC's accounting practices for its cryptocurrency purchases.

In 2020, MicroStrategy stated that purchasing and holding Bitcoin was one of its key business strategies. Up until September 30, 2021, the quarterly 10-Q forms used GAAP indicators to show investors how their revenue would not be affected by Bitcoin volatility.

However, the SEC believes that using GAAP financial indicators will not accurately reflect the true value of digital assets. Therefore, for MicroStrategy, which holds a large amount of Bitcoin, the significant drop in the value of digital currency severely impacts the company's bottom line but is not reflected in these financial statements.

According to the third-quarter financial report as of September 30, 2021, MicroStrategy reported a loss of 36.1 million USD. However, if MicroStrategy's financial reports were adjusted to include stock-based compensation expenses and digital asset impairments, the company's unofficial or non-GAAP indicators would turn the loss into a profit, with revenue of 18.6 million USD.

MicroStrategy believes that using GAAP financial indicators helps investors and analysts compare performance across different quarters on a consistent basis. However, the SEC believes that MicroStrategy should eliminate these adjustments in future filings.

In October of last year, MicroStrategy informed the SEC that measures using non-GAAP principles allow investors to have a more comprehensive understanding of its financial condition. If the company only shows the decline in Bitcoin value, it would conduct an "incomplete assessment of its held Bitcoins, which would be of little significance to management or investors." MicroStrategy further explained, "We believe that including non-cash Bitcoin impairment losses could distract investors' attention from the analysis of our business software analytics operations performance."

However, the SEC disagreed with MicroStrategy's argument. In December of last year, the SEC reminded MicroStrategy to adjust its reporting method, to which MicroStrategy said it would comply.

MicroStrategy has been an advocate for changing the current cryptocurrency accounting rules. In 2021, it wrote to the Financial Accounting Standards Board (FASB) requesting that U.S. accounting rule-makers establish rules that better reflect the true value of cryptocurrencies.

The FASB has consistently refused to create new rules for crypto assets. However, following MicroStrategy and Tesla's high-profile investments in Bitcoin, the FASB announced in December of last year that the board would begin examining "this" issue.

This article is authorized to be reprinted from Horizon News Network