FASB Proposes Cash Equivalents Guidance for Stablecoins

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Breaking it down

Background

The board issued the proposal “Statement of Cash Flows (Topic 230): Cash Equivalents – Disclosure Enhancement and Evaluation of Certain Digital Assets” after stakeholders raised uncertainty about whether stablecoins, digital assets designed to maintain a stable value relative to a reference asset such as a fiat currency, meet the cash equivalents definition. Stakeholders told the board that some entities conclude certain stablecoins meet the cash equivalents definition while other entities holding economically similar stablecoins conclude they do not. Investors separately said existing disclosures do not provide sufficient transparency about the amount of a reported cash equivalents balance that is represented by stablecoins.

Three attributes a stablecoin must possess

The proposed guidance identifies three primary attributes that a stablecoin must possess to meet the current definition of a cash equivalent:

• On-demand contractual cash redemption right
• Direct redemption right with the issuer for known amounts of cash
• Segregated reserve assets on at least a one-to-one basis in short-term, highly liquid assets

Case A meets the cash equivalents definition because Entity A holds a direct, on-demand redemption right with the issuer, and the issuer backs that right with reserves segregated and held one-to-one in cash and short-term Treasury bills. Case B fails on the redemption right alone: An active secondary market willing to transact near $1 per unit is not a substitute for a contractual right to redeem directly from the issuer. Case C fails on reserve composition and notably fails for a reason unrelated to interest rates: Reserves held in crypto assets and gold can change in value for reasons that have nothing to do with interest rate movements, which is enough on its own to defeat the “insignificant risk of changes in value” prong.

Crowe observation: The FASB’s reference to laws and regulations in the proposed implementation guidance is narrower than it first appears. An entity would need to understand and consider relevant laws and regulations, such as the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, when establishing and applying its cash equivalents accounting policy. However, the board does not intend to require an entity to obtain a legal opinion to support that understanding.

The board considered whether an indirect redemption right, one exercised through an intermediary rather than the issuer, could still satisfy “readily convertible to known amounts of cash.” It concluded that indirect rights “introduce additional counterparty credit risk that make the holder’s ability to readily convert the digital asset for a known amount of cash less direct and less certain,” and it built Case B specifically to show that a liquid secondary market alone will not get a holder there. An entity holding stablecoins through an exchange, custodian, or broker rather than a direct account with the issuer should expect to fail this test, even if the stablecoin trades reliably near its peg.

Crowe observation: The FASB frames a direct on-demand redemption right as functionally equivalent to immediate maturity, which is what lets certain stablecoins without a stated maturity date satisfy the existing definition that is built around near-term maturity. The board still leaves “on demand” itself undefined, noting only that stakeholders “generally understood” it “as a redemption that occurs within normal processing time and without undue delay.” Entities should document what “normal processing time” means for their specific arrangement, because the proposal draws no bright line.

A one-to-one reserve ratio is a floor, not a ceiling. The board confirmed that an issuer holding excess reserves in other asset types, so-called overcollateralization, does not automatically disqualify a stablecoin from the definition; only the portion of reserves that is short term and highly liquid counts toward the one-to-one test. The FASB acknowledges the practical difficulty this creates: The proposal’s basis for conclusions states that an entity would need sufficient information to evaluate the key attributes of the digital asset, including the amount and composition of reserve assets held by the issuer. A holder that is not the issuer will not always have that level of detail available, particularly for stablecoins that do not publish reserve attestations.

Why the FASB illustrated the cash equivalents definition instead of rewriting it

The board considered three approaches: revising the Master Glossary definition of cash equivalents to explicitly address digital assets, creating a new Master Glossary term limited to digital asset cash equivalents, or providing illustrative examples under the existing definition. It chose examples because stakeholder feedback indicated the current definition “continues to be appropriate” and is “well understood in practice.” In addition, the board views the definition as “intentionally narrow” and, separately, as intended to be a “high threshold” for a qualifying digital asset’s reserve composition.

Crowe observation: The FASB declined to define “stablecoin” itself, even for purposes of the new disclosure requirement. The board considered a stablecoin-specific disclosure that would have named each significant holding but rejected it because making that disclosure operable would have required defining “stablecoin,” something the board already had decided not to do when it addressed the cash equivalents question.

A new annual disclosure requirement for all cash equivalents, not just digital assets

New paragraph 230-10-50-1A would require an entity to disclose, in annual reporting periods, the significant components (for example Treasury bills, commercial paper, stablecoins, and money market funds) and the related amounts of each component it presents as cash equivalents. The requirement would apply to every entity that elects to present any assets as cash equivalents under paragraph 230-10-45-6, regardless of whether digital assets are involved, for each statement of financial position presented, except that an entity is not required to apply it to comparative periods presented in its initial year of adoption. An entity that does not present any assets as cash equivalents is not subject to the disclosure requirement.

The FASB added the disclosure because the existing accounting policy disclosure in paragraph 230-10-50-1 tells investors how an entity decides what counts as a cash equivalent but gives no quantitative breakdown of what is in that balance. The board decided to let entities use appropriate judgment to determine their own significant components, noting that “significant components” is consistent with other GAAP requirements and is not further defined in the amendments. The board also looked to International Accounting Standard (IAS) 7’s cash and cash equivalents component disclosure as a model but stopped short of full alignment. Unlike IAS 7, the proposed disclosure would not require an entity to disclose the components of cash itself or to reconcile the cash flow statement amounts to the statement of financial position.

Crowe observation: The proposed disclosure extends beyond stablecoins treated as cash equivalents. Any entity that presents Treasury bills, commercial paper, or money market funds as cash equivalents, with no stablecoin exposure at all, will need to break those balances out by component and dollar amount every year. Treasury and accounting teams should treat this as a standard cash-management reporting change to build into year-end close rather than as a digital asset provision that only crypto-active companies need to track.

Crowe observation: “Significant components” is left undefined on purpose, the same way “stablecoin” is. Because the proposed ASU gives no bright line, preparers with cash equivalents would need to set their own significance threshold for what gets broken out separately, document it, and apply it consistently period to period.

Effective date and transition

Comments on the proposal are due Nov. 19, 2026. The board will determine the effective date only after it evaluates comment letters. Early adoption would be permitted in interim and annual reporting periods for which financial statements have not yet been issued or made available for issuance.

As proposed, an entity would apply the amendments related to the illustrative examples, paragraphs 230-10-55-22 through 55-28, on a modified prospective basis, as of the beginning of the annual reporting period that includes the period of adoption, and only to digital assets held as of the date of initial application. The amendments would not require an entity to present a digital asset as a cash equivalent; an entity would still establish a policy concerning which digital assets that meet the definition are presented as such.

In each interim reporting period, if applicable, and the annual reporting period during the year of adoption, an entity would present, in its statement of cash flows or within transition disclosures, a reconciliation of the opening balance of cash, cash equivalents, restricted cash, and restricted cash equivalents before and after adoption to reflect the effect of applying those paragraphs.

The new disclosure requirement in paragraph 230-10-50-1A would apply prospectively, as of the end of the annual reporting period in which the entity first applies the amendments, and it would not need to be applied to comparative periods presented in that initial year. An entity that early adopts in an interim period would apply the disclosure requirement as of the end of that interim period and the illustrative examples as of the beginning of the annual reporting period that includes that interim period.

An entity that applies either set of amendments would disclose the nature of and reason for the change in accounting principle, consistent with paragraph 250-10-50-1(a), in both the interim period, if applicable, and the annual period of the change. The FASB also confirmed that a change related to the illustrative examples would not require a preferability assessment under Topic 250, though that relief would apply only at adoption to digital assets affected by the illustrative examples and would not extend to other cash equivalent policy elections, such as those for Treasury bills or money market funds.

Crowe observation: Because the modified prospective transition applies the illustrative examples only to digital assets an entity already holds as of its adoption date, and because the proposal requires a reconciliation of opening cash, cash equivalents, restricted cash, and restricted cash equivalents before and after adoption, any entity that reclassifies stablecoin holdings into or out of cash equivalents at adoption will show an immediate shift in reported cash and cash equivalents the first period of adoption, even though nothing about the underlying assets changed. Entities with material stablecoin holdings, including any held in restricted arrangements, should consider the effect of that reclassification effect on liquidity ratios and debt covenants.