Heat oil in medium-size heavy saucepan until a deep-fry thermometer registers 350°F. Line a baking sheet with paper towels.
Separate biscuits. With a 1-inch round cookie cutter, cut out the center of each biscuit. Save cut-outs (holes).
Cook doughnuts and holes in batches, 3 minutes per batch, turning once. Transfer cooked doughnuts and holes to lined baking sheet to drain.
While doughnuts are cooling, whisk together the confectioners sugar and water in a medium-size bowl. Spread toasted coconut onto a dinner plate and have the sprinkles at the ready.
Once the doughnuts have cooled slightly, dip the tops of four doughnuts in the glaze, then into the coconut. Press gently to adhere. Let dry on a sheet of waxed paper. Repeat, dipping the remaining doughnuts, and top them with the sprinkles. Let dry on waxed paper. Add the doughnut holes to the remaining glaze in the bowl, and shake to coat. Transfer to waxed paper to dry.