Project Update

EITF Issue No. 15-F: Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

Last updated on August 18, 2015. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the FASB (the Board). It was prepared by the staff and is for the information and convenience of the Board’s constituents. All decisions of the Board are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Board become final only after extensive due process.

*Project Objective and Background
Due Process Documents
*Decisions Reached at Last Meeting
*Next Steps
*EITF/Board Meeting Dates
*Contact Information

*Project Objective and Background

In November 1987, FASB issued FASB Statement No. 95, Statement of Cash Flows. Statement 95 was later codified in Topic 230, Statement of Cash Flows. The Board has received feedback from constituents indicating that there is diversity in practice regarding the application of Topic 230.

The staff’s research indicated that there was diversity in practice with respect to the classification of certain cash receipts and payments. The staff’s research also indicated that the primary reasons for the diversity in classification is the result of lack of specific accounting guidance and inconsistent application of the existing principles within Topic 230.

At its April 28, 2014 meeting, the Board voted to add a project to its agenda. The project, Clarifying Certain Existing Principles on Statement of Cash Flows, was intended to reduce diversity in practice in financial reporting by clarifying certain principles in Topic 230.

At its April 1, 2015 meeting, the Board decided that clarifying certain existing principles within Topic 230 would only incrementally reduce diversity in practice about the classification of cash receipts and cash payments. Therefore, the Board decided to have the EITF consider nine specific cash flow issues with the goal of reducing the existing diversity in practice on a timely basis.

The nine specific issues to be addressed by the EITF include the classification of cash flows related to:

Issue 1—Debt Prepayment or Debt Extinguishment Costs
Issue 2—Settlement of Zero-coupon Bonds
Issue 3—Contingent Consideration Payments Made After a Business Combination
Issue 4—Restricted Cash
Issue 5—Proceeds from the Settlement of Insurance Claims
Issue 6—Proceeds from the Settlement of Corporate-Owned Life Insurance Policies
Issue 7—Distributions Received from Equity Method Investees
Issue 8—Beneficial Interests in Securitization Transactions
Issue 9—Predominant Cash Receipts and Cash Payments
 

Due Process Documents

The FASB has not issued any due process documents related to this project.

*Decisions Reached at Last Meeting (June 18, 2015)

The EITF discussed this Issue at its June 18, 2015 meeting and made the following tentative conclusions.

Issue 1—Debt Prepayment or Debt Extinguishment Costs
The Task Force reached a tentative conclusion that cash payments for debt prepayment or extinguishment costs should be classified as cash outflows for financing activities.

Issue 2—Settlement of Zero-Coupon Bonds
The Task Force reached a tentative conclusion that at settlement, the portion of the cash payment attributable to the accreted interest should be classified as a cash outflow for operating activities and the portion of the cash payment attributable to the principal (original proceeds) should be classified as a cash outflow for financing activities.

Issue 3—Contingent Consideration Payments Made After a Business Combination
The Task Force reached a tentative conclusion that cash payments made by an acquirer after a business combination for the settlement of a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities.

Issue 4—Restricted Cash
The Task Force requested the FASB staff to develop a definition of restricted cash and perform additional research on transfers into and from restricted cash. The Task Force plans to discuss this issue further at a future meeting.

Issue 5—Proceeds from the Settlement of Insurance Claims
The Task Force reached a tentative conclusion that a reporting entity should classify the proceeds received from the settlement of insurance claims based on the insurance coverage (that is, the nature of the loss), including those proceeds that are received in a lump-sum settlement for which reasonable judgment is required to determine the classification based on the nature of each loss.

Issue 6—Proceeds from the Settlement of Corporate-Owned Life Insurance (COLI) Policies
The Task Force requested that the FASB staff perform further research on the classification of premiums paid on a COLI policy. The Task Force plans to discuss this Issue further at a future meeting.

*Next Steps

The EITF will continue to deliberate issues related to this project at its next meeting on September 17, 2015.

*EITF/Board Meeting Dates

The EITF and Board meeting minutes are provided for the information and convenience of constituents who want to follow the EITF’s and Boards' deliberations. All of the conclusions reported are tentative and may be changed at future EITF or Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*June 18, 2015
EITF Meeting
EITF Meeting Minutes
Issue Summary
May 14, 2015
EITF Education Session
EITF Education Session Slides EITF Issue 15-F
April 28, 2014
Board Meeting
Board Meeting—Agenda prioritization meeting about whether to add a project to the Board’s agenda
April 23, 2014
Board Meeting
Education Session—Preliminary research and findings on specific cash flow classification issues within the statement of cash flows
April 1, 2015
Board Meeting
Board Meeting—Discussion about the clarification of certain existing principles

*Contact Information

Mark Pollock
EITF Coordinator
mapollock@fasb.org

Jenifer Wyss
Project Manager
jjwyss@fasb.org

Jin Koo
Practice Fellow
jkoo@fasb.org

Jane Rizzuto
Postgraduate Technical Assistant
jmrizzuto@fasb.org

Justin Gwizdala
Postgraduate Technical Assistant
jngwizdala@fasb.org

Alexis Tanoue
Postgraduate Technical Assistant
actanoue@fasb.org