AICPA publishes Q&A to explain SEC guidance on cryptoassets

By Kevin Brewer

The AICPA has published a set of questions and answers that explains recently released SEC staff guidance regarding the accounting for entities that have obligations to safeguard cryptoassets held for their platform users.

In response to the issuance of Staff Accounting Bulletin No. 121 (SAB No. 121), the Q&As have been placed in Appendix B of the practice aid, Accounting for and Auditing of Digital Assets.

The staff published the bulletin after noticing an increase in the number of companies that provide digital wallet and other services that require the safeguarding of another party's cryptoassets.

SAB No. 121 expresses the staff's view on how an entity that has an obligation to safeguard cryptoassets for another party should account for that obligation. Some key points include:

  • Requirement for an entity with a safeguarding obligation to recognize a safeguarding liability with an accompanying indemnification asset, both initially measured at fair value of the cryptoasset.
  • Requirement for an entity to disclose certain quantitative and qualitative information, both inside and outside the financial statements, about the safeguarding obligation.

The guidance provides the following questions:

1. SAB No. 121 discusses the accounting for entities that have obligations to safeguard "cryptoassets." What does the SAB No. 121 definition of a "cryptoasset" include?

2. Must all the risks identified in SAB No. 121 be present for an entity to have an obligation to safeguard "cryptoassets"?

3. Must an entity operate a platform to be subject to the potential recognition of a safeguarding liability?

4. If an entity determines that it controls "cryptoassets," and therefore recognizes them on its balance sheet, must the entity also recognize a safeguarding liability under SAB No. 121?

5. If an entity only provides wallet software tools to a customer whereby the customer generates and controls the private key information, would the entity's transaction with the customer give rise to a safeguarding obligation within the scope of SAB No. 121?

6. Could two entities recognize a safeguarding liability and safeguarding asset for the same "cryptoasset" being safeguarded?

7. How does an entity determine if it has a safeguarding obligation to a third party, either directly or through an agent and, therefore, must recognize a safeguarding liability and a safeguarding asset under SAB No. 121?

8. How are changes in the fair value measurement of the safeguarding liability and safeguarding asset recognized under SAB No. 121 presented in an entity's statement of operations?

9. When an entity's financial statements are filed with the SEC in accordance with Rule 3-09 and Rule 3-05 of Regulation S-X, are those financial statements subject to SAB No. 121?

The AICPA first published the practice aid in 2019 with nonauthoritative guidance on accounting for digital assets. Since that time, nonauthoritative auditing and additional accounting guidance for digital assets was added to the practice aid.

— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at

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