FASB cautiously advances new stablecoin guidance

Dive Brief:

• The Financial Accounting Standards Board this week took a step forward with a plan to provide guidance holders of stablecoin can use to determine whether certain digital assets could be treated as cash or cash equivalents.   
• In a Wednesday meeting the board decided to provide “illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets may meet the definition of cash equivalents,” according to a release on the FASB’s website. 
• The board members held fast against changing the definition of cash equivalents, asserting that it should remain as a stringent definition for highly liquid assets. Instead, the discussion concerned criterion holders could use to determine whether the assets would meet that current definition. “I think the existing guidance with regard to that definition establishes a high bar so I want to make sure we aren’t doing anything in this project that in essence dilutes what a cash equivalent is,” Marsha L. Hunt, a board member said at the meeting.  

Dive Insight:

Stablecoin — digital currencies that are typically pegged to the value of a traditional currency like the dollar, making their value more stable than more volatile digital currencies like Bitcoin — have crept further into CFOs’ sight lines this year. 

Back in October, the FASB decided in a 6-1 vote to put the high-profile crypto issue on its high-priority agenda for updating accounting standards. Crypto industry groups have called for more clarity on accounting for digital assets as companies like PayPal and Coinbase Global navigate a  “gray area in US accounting rules,”  Bloomberg reported. On the other end of the spectrum, some critics have said that accounting for them as cash equivalents would incorrectly signal to the market that stablecoins are as safe as cash, CFO Dive has previously reported. 

During the meeting, many board members said it would be important in the illustrated guidance to show stablecoin treated as cash equivalent is limited to those for which companies holding the asset have a direct relationship to the issuer.

“It would be valuable to exemplify the on-demand and contractual rights that a holder of stablecoin has with a direct issuer of a stablecoin,” board member Joyce T. Joseph said. “These are relevant characteristics since it demonstrates what makes a stablecoin function more like cash and less like a speculative token.” 

The next step is for the FASB staff to draft a proposed update to accounting standards and the board will then review it and vote whether to proceed with a 90-day comment period on the proposal.