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FASB Proposes Fix to Cash-Flow Classification Rules

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May 4th 2016
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The Financial Accounting Standards Board (FASB) is proposing guidance that would reduce diversity in practice in how changes in restricted cash are classified and presented in the statement of cash flows.

Under Topic 230, Statement of Cash Flows, companies classify transfers between cash and restricted cash as operating, investing, or financing activities – or as a combination of the three – on the statement of cash flows.

However, “some entities present direct cash receipts into, and direct cash payments made from, a bank account that holds restricted cash as cash inflows and cash outflows, while others disclose those cash flows as noncash investing or financing activities,” the FASB said.

In addition, current GAAP does not include specific guidance on the cash-flow classification and presentation of changes in restricted cash or restricted cash equivalents, other than in limited guidance for not-for-profit entities.

The amendments in the proposed Accounting Standards Update (ASU), Statement of Cash Flows (Topic 230): Restricted Cash, which was issued on April 28, would 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 would 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 FASB said.

The proposed ASU was developed by the FASB Emerging Issues Task Force.

If approved by the FASB, the amendments would apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments would be applied retrospectively to all periods presented.

Comments on the proposed ASU are due by June 27. Instructions on how to submit comments can be found in the exposure draft.

Related article:

8 Cash-Flow Issues Addressed in Latest FASB Proposal

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