Thursday, May 09, 2024

House disapproves SEC digital asset accounting and custody guidance

By Mark S. Nelson, J.D.

A Republican-led effort to overturn the SEC’s Staff Accounting Bulletin No. 121, which sought to provide guidance to firms on the proper methods to account for the custody of digital assets, picked up a few Democratic members’ votes on its way to passage in the House today. The use of the Congressional Review Act (CRA) has spiked in recent years, although most such resolutions still fail to take effect when a political party does not control both the White House and Congress. The Biden Administration has already telegraphed a presidential veto if the resolution were to reach the president’s desk. The resolution passed by a vote of 228-182 with 21 Democratic votes in favor of the resolution. The resolution now goes to the Senate.

The contents of SAB No. 121 consist of three Q&A-style sets of guidance, although it is the first question regarding how to account for the safeguarding of crypto assets that has drawn the most attention. The SEC stated that a crypto firm should enter a liability and asset on its balance sheet for any custodied crypto and that the value of the safeguarding liability and the asset should be the fair market value of the crypto assets held for platform users. The remaining Q&As deal with disclosure matters and the time frame for applying the guidance to financial statements.

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