Trapped Excess Cash as a Reporting Challenge

Date01 November 2015
AuthorLouis P. Le Guyader
Published date01 November 2015
© 2015 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22093
Trapped Excess Cash
as a Reporting Challenge
Louis P. Le Guyader
By mid‐2015,
American cor-
porations held
more than $1.7 tril-
lion cash and liquid-
ity equivalents, a
large part of which
represented “trapped
excess cash” earned
abroad that remained
offshore. Now that
cash may be a root
cause of reporting
challenges faced by
these companies.
It has been nearly
a decade since the accumula-
tion of cash offshore first
became evident on public
companies’ balance sheets, and
this accumulation has now
become a standard attribute
of some industries, notably
the high‐tech sector and cer-
tain internet‐based businesses.
Corporate strategies in the tax
and investment arenas have
emerged as the cash balances
grew and attained permanence.
It is the move of the cash
out of simple bank depos-
its that were easy to report
into complex arenas that has
brought with it more complex
accounting; reporting chal-
lenges have become inevitable.
As you read on, remember
that the high concentration
of cash remaining offshore is
being fueled, at least in part,
by taxation and managers’
attempts to avoid taxes. Any
student of reporting and capi-
tal markets will remember that
actions driven by taxation, in
contrast to productive invest-
ment and the culling of profits
from customer sales, are fre-
quently inefficient (meaning,
in the long term, not optimal
for profitability). Those tax‐
based actions are taken on the
slippery slopes of
corporate reporting
and even may lead to
morally hazardous
This article docu-
ments reporting chal-
lenges in corpora-
tions with the largest
cash balances and
foreign operations
that have become
The $1.7 trillion figure has
become the most widely rec-
ognizable dollar amount for
“trapped excess cash.” Actual
cash balances across industry
might differ because of the way
corporations manage them,
transforming cash at least for
a while into securities invest-
ments, and the way the bal-
ances vary from time to time in
the normal course of business.
Exhibit 1 summarizes the cash
balances from recent selected
Securities and Exchange Com-
mission (SEC) filings and
shows that less than 30 com-
panies account for about $1.0
“Trapped excess cash” can give rise to report-
ing issues including the quality of earnings, tax
reporting, foreign currency reporting, representa-
tions about “free cash flow,” and decisions related
to investments in marketable securities and the
allocation of “trapped excess cash” in corporate
split-ups. Increased vigilance is needed because
every new management decision or reporting
choice is an opportunity for a moral-hazard stum-
ble on the slippery slopes of corporate reporting,
and after all, here we are dealing with cash—the
“liquid” asset. © 2015 Wiley Periodicals, Inc.
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