SEC bulletin says custody companies should show crypto as liabilities

A new accounting bulletin published on the US Securities and Exchange Commission’s website states that companies that offer crypto custody services should account for crypto assets as liabilities on their balance sheet.

The bulletin published Thursday summarized the SEC’s staff views on how crypto custody companies should implement accounting rules on cryptocurrencies since there are no standard guidelines available for the accounting treatment of the web3 currencies.

The guidance noted that there has been an increase in the number of entities that safeguard the crypto assets of users and maintain their cryptographic keys. Such obligations may, therefore, involve “unique risks and uncertainties” that are usually not seen in non-crypto assets.

Among other things, the SEC staff particularly emphasized that crypto-assets should be counted as debts or liabilities on a custodian’s balance sheet due to several “technological, legal, and regulatory risks and uncertainties.” In addition, entities should also disclose the “nature and amount” of assets they are safeguarding. Elaborating on its reasoning for the same, the staff said:

“The staff believes that the recognition, measurement, and disclosure guidance in this SAB will 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.”

The guidelines were noticeably criticized by SEC Commissioner Hester Pierce in a follow-up statement released on March 31. Calling the bulletin a “scattershot and inefficient approach to crypto,” Pierce noted that a staff accounting bulletin is not an appropriate vehicle for publicizing this accounting change since it guides a “very specific, very limited number of public companies.”

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