On January 23, 2025, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 122 (SAB 122), returning to a principles-based approach to accounting for safeguarding obligations of crypto assets. This update rescinds SAB 121 and directs reporting entities to well-established U.S. GAAP and IFRS frameworks, aiming to provide clarity and consistency in financial reporting while preserving critical disclosure requirements.
Referred Crypto Asset Accounting Issues to FASB?
Despite the improvements introduced by SAB 122, questions persist about whether the SEC should have addressed these matters differently. Nonetheless, the release of SAB 122 represents a significant improvement in the accounting guidance for safeguarding obligations of crypto assets. Unlike its predecessor, SAB 121, which introduced some unexpected and unconventional approaches, SAB 122 refers reporting entities to well-established US GAAP and IFRS frameworks—standards that have undergone rigorous public due process and transparent debate. This shift is widely seen as a critical enhancement, not simply within the digital assets and traditional financial services industries, but among most accounting and reporting experts that have followed SAB 121’s trajectory. This view is shared among these experts because SAB 122 aligns with accounting standards and principles that should have been the primary reference from the beginning.
Although SABs are not officially authoritative, auditors and market participants often treat them as such, creating unintended compliance burdens. The key issue with SAB 121 was its reliance on less commonly used accounting standards, which introduced uncertainty and operational challenges. In contrast, SAB 122 provides a more reliable foundation by leveraging widely accepted and used accounting standards that many industry experts believe should have been applied from the outset.
If the SEC identified gaps in GAAP, it could have sought input from FASB rather than issuing what essentially became a form of de facto authoritative new guidance independently. That is to say, the SEC should have referred these matters to the Financial Accounting Standards Board (FASB) for an authoritative response. This approach would have ensured that any new requirements followed an established and transparent due process, involving broad industry consultation and input from both the digital assets and the financial services industries.
Enhancing the Effectiveness of Crypto Asset Reporting
While SAB 122 provides a clearer framework, reporting entities must approach the guidance with diligence, carefully evaluating their risks of loss and disclosure obligations. Separately, the FASB could consider taking up the reporting matters that SAB 121 sought to address or bring to the market’s attention. For example, even if customer-held assets are not recognized on balance sheets, disclosing their fair value in audited footnotes can provide meaningful insights for investors. Furthermore, the FASB could consider directly addressing the treatment of customer-held assets in insolvency scenarios to ensure clarity and consistency for all parties.
Regardless of whether the FASB takes on the concerns flagged in SAB 121, the SEC’s emphasis on accurate and effective communication to financial statement users is a welcome reminder within SAB 122. Reporting entities can always add substantive disclosures that provide decision-useful information that allows investors to best understand the economic use cases and risks related to an entity’s crypto assets activities.
How SAB 122 Impacts the Crypto Market
SAB 122 may attract new participants to the crypto market. Traditional custodians and financial institutions, which had previously engaged with the SEC to advocate for more suitable measurement and reporting practices, might now feel more confident entering the crypto asset space. However, SAB 121 impacted a wider range of market participants, including crypto exchanges and digital asset platforms, many of which were not involved in the initial regulatory discussions. The costs imposed by SAB 121 often outweighed the benefits, discouraging broader market involvement.
Both the digital assets and the financial services industries as a whole welcome SAB 122 because, among other things, it reestablished the importance of authoritative accounting standards and the rigorous due process they ensure.
Future Considerations for Crypto Asset Classification and Disclosure
While SAB 122 represents progress, further efforts are necessary to address the most effective measurement and disclosure approaches for crypto assets. Although SAB 122 does not explicitly reference ASC 820 (Fair Value Measurement) and IFRS 13 (Fair Value Measurement), these standards remain critical in ensuring transparency and decision useful information within audited financial reports.
Additionally, there is an increasing need to reconsider the classification of crypto assets beyond their current treatment as indefinite-lived intangible assets under existing standards. With digital assets continuing to develop in complexity and use cases, the accounting framework must adapt to reflect their diverse economic realities. This includes exploring new classifications that better capture their utility, such as tokenized securities or decentralized finance (DeFi) instruments.
Why Lukka is the Preferred Solution for SAB 122 Compliance
As reporting entities work to implement SAB 122, they require high-quality data and technology solutions to meet risk assessment, disclosure, and valuation requirements effectively. Lukka offers a comprehensive suite of tools designed to support compliance, reporting, and risk management efforts:
- Lukka Prime Pricing Data: The audit-ready solution offering GAAP- and IFRS-aligned fair value pricing, ensuring compliance and bolstering investor trust in financial reporting.
- Lukka Enterprise Data Management: A robust solution for data standardization, reconciliation, and reporting, ensuring institutions maintain accurate and transparent records.
- Audit-Ready Transparency: Lukka’s solutions provide detailed audit trails and support compliance with SEC and FASB disclosure expectations.
The Road Ahead for Crypto Asset Accounting Compliance
SAB 122 represents an important step in guiding crypto asset safeguarding obligations toward a more reliable, transparent, and effective reporting framework. As both the digital asset and traditional financial services industries adjust to these changes, financial institutions—including banks, custodians, and asset managers—must assess how regulatory expectations impact their operations. Lukka stands ready to support organizations across both sectors in understanding SAB 122 requirements and ensuring compliance with confidence.
