Statement of cash flows — FASB tentatively decides to address specific issues and research holistic improvements

Published on: 02 Apr 2015

At its meeting yesterday, the FASB deliberated how to proceed with its project on clarifying certain existing cash flow classification principles in ASC 230.1 The Board debated whether it would be able to reduce diversity in practice by establishing a principle that entities could apply to classify cash flows as investing, financing, or operating activities; however, a majority of the Board did not believe that such an approach would provide the desired clarity. In addition, some Board members discussed perceived inconsistencies in existing guidance on cash flow classification.

Ultimately, the Board tentatively decided to add the identified cash flow classification practice issues to the EITF’s agenda so that the Task Force can develop authoritative illustrative guidance or authoritative Q&As to resolve those issues. The Board also tentatively decided to add a research project to its agenda to make holistic improvements to the cash flow classification guidance (the research would not, however, address whether to mandate use of the direct method in the statement of cash flows). The timing of any such research efforts would be coordinated with that of the research performed in connection with (1) the Board’s project on the financial statements of not-for-profit entities and (2) the Board’s project on financial performance reporting.

The issues referred to the EITF include classification of cash flows related to:

  • Settlement of insurance claims.
  • Debt prepayment or extinguishment costs.
  • Restricted cash.
  • Settlement of zero coupon bonds.
  • Distributions received from equity method investees.
  • Settlement of life insurance contracts.
  • Contingent consideration payments made after a business combination.
  • Beneficial interests in securitization transactions.
  • Application of the predominance principle.


1 FASB Accounting Standards Codification Topic 230, Statement of Cash Flows.

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