SAB 121 rescinded: What it means for crypto custody and regulation in 2025

The recent rescission of Statement on Auditing Standards No. 121 (SAS 121) by the American Institute of CPAs (AICPA) has significant implications for the crypto industry, particularly in terms of custody and regulation. Notably, the change could alter the auditing practices for digital assets, leading to more rigorous and comprehensive audits.

SAS 121 was initially enacted to provide guidelines for auditors when verifying the ownership of an entity's assets. However, this has been rescinded due to the unique nature of digital assets, which often makes it difficult to apply traditional auditing standards. For instance, one of the challenges in the crypto industry is that digital assets could be controlled by multiple individuals simultaneously, making it hard to establish clear ownership.

With the rescission of SAS 121, auditors are expected to adopt more stringent auditing practices. They are likely to delve deeper into understanding how a company controls its digital assets and mitigates the associated risks. Additionally, auditors may need to seek assistance from technology specialists to adequately assess the risk of misstatement due to fraud or error in financial reports involving digital assets.

Furthermore, the rescission of SAS 121 has significant implications for crypto custody. With the new auditing standards, crypto custodians may need to provide more detailed evidence to prove that they hold and control the assets on behalf of their clients. This could lead to an increased demand for robust systems and processes to manage and safeguard digital assets.

Finally, the change in auditing standards can also impact crypto regulations. Regulatory bodies may need to update their guidelines to align with the new auditing practices. This could result in more stringent regulations for crypto businesses, potentially leading to increased transparency and trust in the crypto industry.

In conclusion, the rescission of SAS 121 is a game-changer for the crypto industry. It is likely to lead to more rigorous audits, stricter crypto custody practices, and potentially tighter regulations. This could pave the way for increased transparency, trust, and credibility in the digital asset market.