The SEC’s Office of the Chief Accountant (OCA) last month withdrew its much-criticized Staff Accounting Bulletin (SAB) No. 121 on the accounting for custodied crypto assets. But for now the AICPA is keeping the portions that deal with SAB 121 in its Practice Aid, Accounting for and auditing of digital assets, Ami Beers, the association’s senior director of assurance and advisory innovation, told Thomson Reuters on February 20, 2025.
The OCA rescinded SAB 121 with the publication of SAB 122 on January 23, 2025, which became effective on January 31 with its publication in the Federal Register.
Appendix B of the AICPA’s practice aid is dedicated to SAB 121, and Beers said that the staff left the appendix intact because companies don’t need to adopt SAB 122 until their periods beginning after December 15, 2024.
“So throughout this year, you probably expect companies… they can obviously adopt early…but in the event that they don’t, they still needed the guidance for 121,” Beers said. “And so we’ve left the guidance in.”
The practice aid has been reflected with a note saying that SAB 122 was issued that rescinds SAB 121, she said.
If companies are no longer following SAB 121, she said they will need to look to FASB Subtopic 450-20, Loss Contingencies, to determine whether they need to report a loss on those assets, Beers said. “And then, of course, they will need to explain the change in accounting when they do initially adopt” SAB 122.
SAB 121, which was issued at the end of March 2022 when Gary Gensler was SEC chair to better protect investors, described how companies should account for custodial services of crypto assets.
Because of risks unique to crypto, the staff determined that companies should record a liability and corresponding asset on their balance sheets at fair value.
But upon issuance, SEC Commissioner Hester Peirce, also known as Crypto Mom, immediately criticized the agency for not having taken a deliberative step to issue the guidance. Or the accounting standard-setter FASB could have taken up the project, she said.
There was a pushback from the crypto industry. And banks strongly opposed SAB 121, heavily lobbying against it. Banking regulators were also quietly critical of the SEC staff’s accounting guidance. With so much opposition, Congress voted to repeal it, but President Biden vetoed it.
Today, with the change in an administration that is now very friendly towards cryptos, SAB 121 was tossed aside by Acting SEC Chair Mark Uyeda.
When asked whether the AICPA will eventually scrub off SAB 121 from the practice aid, Beers said it is too early to tell. It’s been only a few weeks since the staff bulletin got rescinded.
“We haven’t made that determination yet how we are going to handle it,” she said, adding that they will see how things play out.
Because it’s still in early days, the AICPA has yet to get any questions about what to do if they are no longer accounting the custodied cryptos following SAB 121 but accounting for it following the FASB’s standard and determine whether they have any loss.
“The SEC has a crypto Task Force that they just established; so we are watching and monitoring that to understand what changes may or may not be made,” she said.
For now, she expected some companies to still account for the cryptos using SAB 121.
SAB 122
In particular, SAB 122 says that a company “should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies” in FASB Subtopic 450-20 or International Accounting Standard (IAS) 37, Provisions, Contingent Liabilities and Contingent Assets.
Companies should rescind the effect of SAB 121 “on a fully retrospective basis in annual periods beginning after December 15, 2024,” the staff bulletin notes. Companies may elect to rescind in any earlier interim or annual financial statements after the effective date of SAB 122.
“Entities should include clear disclosure of the effects of a change in accounting principle upon initial application of this rescission,” SAB 122 states. “The staff reminds entities that they should continue to consider existing requirements to provide disclosures that allow investors to understand an entity’s obligation to safeguard crypto-assets held for others. These requirements include, but are not limited to, Items Item 101,105, and 303 of Regulation S-K; FASB ASC Subtopic 450-20; and FASB ASC Topic 275, Risks and Uncertainties.”
This article originally appeared in the February 25, 2025, edition of Accounting & Compliance Alert, available on Checkpoint.
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