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FASB Clears Up Confusion on Restricted Cash Reporting

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Nov 18th 2016
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A new standard issued by the Financial Accounting Standards Board (FASB) on Nov. 17 provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows – something that current GAAP was lacking.

Because of the lack of specific guidance, other than in a limited form for not-for-profit entities, there were inconsistencies in how changes in restricted cash were classified and presented.

The amendments in Accounting Standards Update (ASU) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

“Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows,” the ASU states.

In addition, “transfers between cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents are not part of the entity’s operating, investing, and financing activities, and details of those transfers are not reported as cash flow activities in the statement of cash flows,” the ASU states.

The amendments do not provide a definition of restricted cash or restricted cash equivalents.

The new standard applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230.

For public business entities, the amendments go into effect for fiscal years beginning after Dec. 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments go into effect for fiscal years beginning after Dec. 15, 2018, and interim periods within fiscal years beginning after Dec. 15, 2019.

Early adoption is permitted, including adoption in an interim period. If an entity early adopts the standard in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

Also, the amendments should be applied using a retrospective transition method to each period presented.

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