The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 122 to rescind the interpretive guidance previously provided in SAB 121. SAB 121 was originally issued in order to address accounting for obligations related to safeguarding crypto assets held by entities on behalf of platform users. It required entities to recognize both a liability and a related asset, measured at the fair value of the users' crypto assets, and to include disclosures about the type and amount of crypto assets held, including separate disclosures for significant assets and any vulnerabilities arising from concentration risks.
SAB 122 clarifies that entities with obligations to safeguard crypto assets for others must evaluate whether to recognize and how to measure a liability related to the risk of loss associated with such obligations. This evaluation must be undertaken in accordance with ASC 450-20 (Loss Contingencies) under U.S. GAAP or IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets) under IFRS.
SAB 122 reminds entities that they are required to provide detailed disclosures to ensure investors have a clear understanding of their safeguarding obligations. These disclosures may include:
- details outside of the financial statements required under Regulation S-K, such as descriptions of the business, risk factors, or management's discussion and analysis (MD&A) of financial condition and results of operations; and
- disclosures under ASC 450-20 and ASC 275 (Risks and Uncertainties), addressing risks and uncertainties related to safeguarding crypto assets.
SAB 122 must be applied using a full retrospective transition approach for annual periods beginning after December 15, 2024.
In a September 2024 speech addressing SAB 121 by SEC Chief Accountant Paul Munter, the Chief Accountant noted that this kind of "financial reporting provides relevant, timely information that investors need to assess the unique risks and uncertainties related to safeguarding crypto-assets for others." Chief Accountant Munter is due to retire from public service at the end of this month.
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