The U.S. Financial Accounting Standards Board (FASB) has issued a proposed accounting update that would define conditions under which companies may classify specific stablecoins as cash equivalents under generally accepted accounting principles (GAAP).
The proposal, released on Tuesday, introduces illustrative examples to the existing definition of cash equivalents while leaving the core definition unchanged. To qualify, a digital asset must meet three criteria: an on-demand contractual redemption right, a direct issuer redemption mechanism for a fixed cash amount, and segregated reserves held in short-term, highly liquid assets with a one-to-one backing ratio. The FASB emphasized that active secondary markets alone would not suffice if the holder lacks a direct redemption right with the issuer.
The proposal also specifies that reserves composed of cryptocurrencies or gold would disqualify a token due to valuation risks. Companies would retain discretion on whether to present qualifying assets as cash equivalents, subject to compliance with relevant laws and regulations.
The FASB is accepting public comments on the proposed update until November 19. A final effective date will be determined after reviewing stakeholder feedback.
