The Financial Accounting Standards Board (FASB) has proposed guidance defining when companies can classify certain stablecoins as cash equivalents under U.S. generally accepted accounting principles (GAAP).
On Tuesday, FASB announced the preparation of an accounting standard update that will add illustrative examples to the current definition and address inconsistencies in accounting for digital assets, including stablecoins. The definition itself will not change.
The document states that the relevant digital asset must provide a contractual right to demand redemption on demand directly from the issuer for a predetermined sum of money, and also have reserves in a ratio of at least one to one, held separately in short-term, highly liquid assets.
One example indicates that an active secondary market is insufficient if the holder does not have a direct right of redemption from the issuer. Another example shows that reserves consisting of cryptoassets and gold would not allow a token to receive such a classification due to valuation risks.
Companies will still be able to independently decide whether to classify eligible assets as cash equivalents, taking into account applicable laws and regulatory requirements.
FASB is accepting public comments on the proposed update until November 19. The organization will determine the effective date of the changes after reviewing stakeholder feedback.
Related: Tether announces that a 'Big Four' firm will conduct the first full audit of USDT reserves
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