New Guidance on Statement of Cash Flows Questions

DOIhttp://doi.org/10.1002/jcaf.22257
Published date01 March 2017
AuthorPaul Munter
Date01 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.

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