1.4 Recently Issued Accounting Guidance

1.4.1 FASB ASU on Crypto Assets

In December 2023, the FASB issued ASU 2023-08, which addresses the accounting and disclosure requirements for certain crypto assets. Before the ASU’s issuance, an entity accounted for certain digital assets as indefinite-lived intangible assets in accordance with ASC 350 (i.e., the assets were measured at historical cost less impairment). Stakeholders had raised concerns that, among other factors, this intangible asset model (1) did not faithfully represent the economics of crypto assets and (2) made the recognition of impairments needlessly complex by requiring entities to use a crypto asset’s lowest observable fair value within a reporting period.

Accordingly, ASU 2023-08 requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about certain crypto asset holdings.

However, as discussed in more detail in Section 2.3, the new guidance only applies to certain crypto assets within its scope. As a result, an entity may need to consider other accounting frameworks to account for a digital asset or some digital assets may continue to be accounted for under the intangible asset model that is in effect before the adoption of the guidance in ASU 2023-08. The accounting for crypto assets that are not intangible assets, such as certain stablecoins and NFTs, is outside the scope of this publication. An entity should carefully determine the classification of such crypto assets and is encouraged to discuss this matter with its accounting advisers.

1.4.2 SEC Guidance

1.4.2.1 SAB 121 and SAB 122

In March 2022, the SEC issued SAB 121, which:

Provided the SEC staff’s view that an entity that has an obligation to safeguard crypto assets should record a liability and corresponding asset on its balance sheet at the fair value of the crypto assets.
Added Section FF to SAB Topic 5; this section included “interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets.”

The SEC staff had seen an increase in the number of entities that give users the ability to transact crypto assets and provide a service to safeguard these assets. Further, the staff had observed diversity in practice related to how entities disclose their obligations to safeguard crypto assets. In the SEC staff’s view, unique risks and uncertainties (e.g., technological, legal, regulatory) are associated with safeguarding crypto assets. Accordingly, SAB 121 was intended to “enhance the information received by investors and other users of financial statements about these risks, thereby assisting them in making investment and other capital allocation decisions.”

On January 23, 2025, the SEC published SAB 122 to rescind SAB 121. The rescission will have a significant impact on the financial statements of entities that were previously within SAB 121’s scope since entities will now derecognize safeguarding assets and safeguarding liabilities that were formerly recognized under SAB 121. Such entities will evaluate whether liabilities under ASC 450 need to be recorded for any safeguarding activities.

Although SAB 122 rescinds the guidance in SAB 121, the SEC staff continues to emphasize the unique risks and complexities of arrangements involving digital assets. The staff has highlighted that it is important for companies to understand the facts and circumstances of safeguarding-related transactions as well as the risk of loss events associated with safeguarding. For more information about SAB 121, see Appendix C. For further details on SAB 122, see Chapter 9.

Connecting the Dots

While SAB 122 rescinds SAB 121, full retrospective application of SAB 122 is only required for annual periods beginning after December 15, 2024, and entities are permitted to early adopt SAB 122 in any interim or annual financial statement period included in filings with the SEC on or after January 30, 2025. Since entities can wait to adopt SAB 122 until the required effective date, Appendix C includes guidance related to SAB 121. However, we believe that most, if not all, entities will early adopt SAB 122 and that many have already early adopted it as of the date of issuance of this publication.

1.4.2.2 Crypto Lending and Borrowing

The SEC has also shared its views on other aspects of accounting for digital assets. At the 2022 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC staff discussed the accounting for crypto lending, prompting the AICPA to update its practice aid on digital assets (the “AICPA Practice Aid”)3 to reflect the staff’s views. See Section 8.2 for further considerations related to crypto asset borrowing and lending.

Footnotes

The AICPA Practice Aid provides nonauthoritative interpretive guidance from the AICPA’s Digital Assets Working Group (DAWG) on how to account for and audit digital assets.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.