Hot Topic |April 2022

 

Insight

SAB 121: Questions & Answers

We summarize and answer key questions about the SEC’s guidance on digital asset safeguarding obligations.

Scott Muir

Scott Muir

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5073

Chase Stobbe

Chase Stobbe

Managing Director, Dept. of Professional Practice, KPMG US

1-571-695-5868


The latest in our series, this Hot Topic addresses how to apply the new SEC Staff Accounting Bulletin on obligations to safeguard digital assets for others.

Applicability

SAB 121 applies to financial statements prepared under either US GAAP or IFRS® Standards for:

  • Existing registrants
  • Entities that have submitted or filed a not-yet-effective registration statement
  • Other entities and financial statements as specified by the SAB

Relevant dates

Existing registrants apply SAB 121 to financial statements for interim and annual periods ending after June 15, 2022, with retrospective application to the beginning of the fiscal year, at a minimum.

Other entities subject to SAB 121 apply it in their next submission or filing. Retrospective application is required to either:

  • the beginning of the most recent annual period ending before June 15, 2022, when a subsequent interim period is presented; or
  • the beginning of the two most recent annual periods ending before June 15, 2022, when a subsequent interim period is not presented.

Key impacts

An entity that holds digital assets for others recognizes (1) the custodied digital assets and (2) a liability to return those assets if it ‘controls’ them.

If the entity does not control the custodied digital assets, it recognizes the following under SAB 121: 

  • a liability for its obligation to safeguard the digital assets held, reflective of unique risks and uncertainties present in these arrangements; and 
  • a corresponding safeguarding asset.

The safeguarding obligation liability is measured initially and subsequently at the fair value of the digital assets held in custody. The safeguarding asset is measured in the same manner, but adjusted for any loss (or potential loss) events.

Report contents

  • Introduction
  • Applicability
  • In a snapshot
  • Effective date and transition
  • Questions and answers

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