As a consensus from the Emerging Issues Task Force (EITF), the Financial Accounting Standards Board (FASB) recently released changes to the presentation and disclosure of restricted cash.
A project contemplating improvements to the cash flow statement has been on the EITF agenda for quite some time. The portion of the cash flow statement improvements project related to restricted cash was broken out of a larger project due to the challenges with reaching a consensus. Accounting Standard Update 2016-18, Statement of Cash Flows (Topic 238): Restricted Cash clarifies that entities should report restricted cash and restricted cash equivalents along with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Although the EITF decided to not define the terms restricted cash and restricted cash equivalents, it did conclude that entities should disclose the nature of the restrictions on cash and cash equivalents. When cash, cash equivalents and restricted cash and restricted cash equivalents are included in multiple line items on the balance sheet, disclosure will be required. The disclosures should include the amounts, separated by line items, and the sum of the total amount of cash, cash equivalents, restricted cash and restricted cash equivalents in either a narrative format or a table.
Making the accounting change will address the diversity in current practice, where entities classify transfers between cash and restricted cash as some combination of financing, investing and operating activities. Others present activities involving bank accounts with restricted cash as cash inflows and cash outflows. Some entities present those same activities as noncash investing or financing activities. The new guidance clarifies that transfers between cash, cash equivalents, restricted cash and restricted cash equivalents are not to be described as operating, investing or financing activities because those activities are not reported as cash flow activities in the statement of cash flows.
Amendments will be effective for public business entities for fiscal years, and interim periods within, beginning after December 15, 2017 (2018 calendar year). All other entities will adopt for annual periods beginning after December 15, 2018 (2019 calendar year) and interim periods within annual periods beginning after December 15, 2019).
For more information about how the changes will affect your company, please contact Mark Winiarski of MHM's Professional Standards Group. Mark can be reached at firstname.lastname@example.org or 816.945.5614.
Published on November 22, 2016