The SEC changes accounting rules for safeguarding crypto assets with its SAB 121 repeal

By Amy Park, Audit & Assurance Partner, Deloitte & Touche LLP, and PJ Theisen, Audit & Assurance Partner, Deloitte & Touche LLP

Talking points

• On January 23, 2025, the SEC published Staff Accounting Bulletin (SAB) 122, which requires changes in financial reporting for entities that safeguard crypto assets.
• SAB 122 rescinds SAB 121, issued in March 2022, undoing the staff accounting interpretation provided in that bulletin.
• This action, together with other recent announcements, signals a shift for digital and crypto asset regulation in the United States.

Immediately after the 2024 presidential election was settled, speculation arose in the finance community about the potential repeal of SAB 121—and for good reason. At the 2024 AICPA & CIMA Conference on Current SEC and PCAOB Developments (see our Heads Up), SEC Commissioner Mark Uyeda expressed his belief that this particular SAB should be rescinded. Following his appointment as SEC acting chairman post-inauguration, he promptly took action to make it happen.

Understanding SAB 122 in the context of SAB 121

So, what should you know about SAB 121’s rescission—SAB 122? Let’s break down SAB 122’s requirements for the finance and accounting community by first reviewing key requirements of the guidance it rescinds.

Key SAB 121 features and requirements

• SAB 121 changed accounting and financial reporting by requiring a liability recorded for safeguarded crypto assets (measured based on their fair value), with a corresponding asset.
• The guidance also required entities to disclose details about the nature and amount of safeguarded crypto assets, and any vulnerabilities, including who holds the cryptographic keys, maintains records, and secures the assets against loss or theft.
• SAB 121 lacked a definition for safeguarding, requiring entities to use significant judgment to determine in-scope transactions. Additionally, on-balance-sheet recognition posed challenges for certain regulated entities subject to regulatory requirements, such as capital or reserve requirements.

SAB 122’s changes

SAB 122, effective for annual periods beginning after December 15, 2024, applies to financial reporting for entities previously covered by SAB 121. The new guidance will effectively reverse key requirements of SAB 121, including:

Safeguarding liability. SAB 122 states that if you’re responsible for safeguarding crypto assets for others, you need to decide if you should recognize a liability under Accounting Standards Codification Subtopic 450-20. For those using International Financial Reporting Standards (IFRS), check International Accounting Standard (IAS) 37. When adopting SAB 122, you’ll usually remove any safeguarding liability unless there’s a loss contingency.

Change in accounting principle. SAB 122 requires entities to clearly disclose the effects of a change in accounting principle when applying the SAB 121 rescission. According to ASC 250-10-45-51, this change should be applied retrospectively unless impractical. ASC 250-10-45-51 also states that entities must show the cumulative effect of the change in periods prior to the earliest period in the financial statements, adjusting asset and liability amounts and the opening balance of retained earnings in the earliest comparative period.

Disclosures. SAB 121 required many disclosures in both the footnotes and outside the financial statements. While SAB 122 emphasizes the importance of disclosures, it doesn’t add new crypto disclosure requirements. However, it reminds entities to clearly disclose the effects of any change in accounting principles. Entities should also consider if any information previously required by SAB 121 is still relevant and should continue to be disclosed, especially if it aligns with ongoing risks and uncertainties as per existing guidance.

Other changes in crypto regulation

Two other regulatory moves could substantially affect digital assets. On January 21, 2025, SEC Acting Chairman Mark Uyeda launched a crypto task force led by SEC Commissioner Hester Peirce. President Trump also signed an executive order on January 23, titled “Strengthening American Leadership in Digital Financial Technology,” designed to lay the groundwork for regulatory clarity for digital financial technology and secure America’s leadership in the digital asset economy. It also establishes the Presidential Working Group on Digital Asset Markets and promises to halt “aggressive enforcement actions and regulatory overreach that have stifled crypto innovation.”¹

What role can Deloitte play?

Deloitte can provide advice as you consider how to move forward with SAB 122 and future cryptocurrency requirements arising from recent digital asset developments. To learn more, read our Heads Up on the topic. Feel free to reach out to us with any questions.

¹ The White House, “Strengthening American leadership in digital financial technology,” January 23, 2025.

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