New Guidance on Statement of Cash Flows Questions

• DOI: http://doi.org/10.1002/jcaf.22257
• Published date: 01 March 2017
• Date: 01 March 2017

FASB

84

© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22257

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New Guidance on Statement of

CashFlows Questions

Paul Munter

While the cash flow statement

requirements have been in

effect for nearly 30 years, there

has been an increased focus

on the classification of cash

flow items in the statement of

cash flows recently. In fact,

anecdotal information shows

that restatements related to the

statement of cash flows is one

of the more common sources

of restatements—especially

among items not affecting net

income.1 In recognition of

this, the Financial Account-

ing Standards Board (FASB)

currently has a pre-agenda

research project under way

entitled “Financial Perfor-

mance Reporting,” which is a

broad undertaking involving

potential improvements to the

performance statement, other

comprehensive income, and

statement of cash flows.2 Addi-

tionally, in its recent agenda

consultation, the FASB asked

for constituent input on what

its agenda priorities should

be in the near future. In that

consultation document, the

FASB identified financial

reporting, including cash flow

statement issues, as one of the

four potential future agenda

projects on which it sought

constituent feedback.3 While it

remains to be seen whether the

FASB will undertake a com-

prehensive project that involves

a reconsideration of the state-

ment of cash flows, the FASB

determined that more immedi-

ate guidance was needed for a

number of specific cash flow

statement issues.

The FASB directed the

Emerging Issues Task Force

(EITF) to deliberate and pro-

vide guidance on the following

cash flow statement questions:

• Issue 1: Debt prepayment

or extinguishment costs

• Issue 2: Settlement of

zero-coupon bonds

• Issue 3: Contingent

consideration payments

made after a business

combination

• Issue 4: Restricted cash

• Issue 5: Proceeds from

thesettlement of insurance

claims

• Issue 6: Proceeds

from thesettlement of

corporate-owned life

insurance (COLI) policies

• Issue 7: Distributions

received from equity

method investees

• Issue 8: Beneficial

interestsin securitization

transactions

• Issue 9: Application of the

predominance principle

The EITF completed its

deliberations on these issues

and the FASB issued ASU

2016-15 to address eight of

those issues.4 The final issue,

restricted cash, is addressed in

ASU 2016-18.5

Of importance when con-

sidering the EITF’s conclusions

on these issues is that there

appears to be an underlying

principle used by the EITF.

Specifically, the classification

of activities in the statement

of cash flows, when the answer

may be subject to uncertainty

or interpretation should be

based primarily on how the

related transaction is accounted

for and what that account-

ing says about the underlying

nature of the related cash flow.