The Financial Accounting Standards Board’s Emerging Issues Task Force has issued an exposure draft proposing changes in how restricted cash should be treated on the statement of cash flows.

The EITF has found some diversity in practice in how changes in restricted cash are classified and presented on the statement of cash flows. Some entities classify transfers between cash and restricted cash as operating, investing or financing activities, or as a combination of those activities, on the statement of cash flows. On the other hand, some entities present direct cash receipts into—and direct cash payments made from—a bank account that holds restricted cash as cash inflows and cash outflows, while others disclose those cash flows as noncash investing or financing activities.

The amendments in the proposed accounting standards update would require a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents would be included with cash and cash equivalents when reconciling the beginning-of-period and end- of-period total amounts shown on the statement of cash flows.

Current GAAP lacks specific guidance on the cash flow classification and presentation of changes in restricted cash or restricted cash equivalents other than limited guidance for not-for-profit entities, according to the EITF. Specifically, there is no guidance to address how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents.

The amendments in the proposed update would provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in practice described above. The proposed chnages would apply retrospectively to all periods presented. The effective date and the ability to early adopt will be determined after the EITF considers stakeholder feedback on the proposed update.

FASB is inviting individuals and organizations to comment on a number of specific issues and questions. For more information, click here.

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