[1]To help reduce the diversity in practice as to how certain cash receipts and cash payments are presented and classified in the statement of cash flows, the Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments [2].
The FASB issued this standard to clarify areas where GAAP has been either unclear or lacking in specific guidance. The amendments apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230.
Specially, the update provides guidance for eight cash flow issues:
- Debt prepayment or debt extinguishment costs
- Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing
- Contingent consideration payments made after a business combination
- Proceeds from the settlement of insurance claims
- Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies
- Distributions received from equity-method investees
- Beneficial interests in securitization transactions
- Separately identifiable cash flows and application of the predominance principle
The amendments take effect for public business entities for fiscal years beginning after Dec. 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments take effect for fiscal years beginning after Dec. 15, 2018, and interim periods within fiscal years beginning after Dec. 15, 2019. While early adoption is permitted, including adoption in an interim period, any adjustments are required to be reflected as of the beginning of the fiscal year that includes the interim period. Further, an entity that elects early adoption is required to adopt all the amendments in the same period.
The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.
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