Project Update

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

Last updated on January 8, 2016. 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
*Summary of Tentative Decisions Reached to Date
*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—Proceeds from the Settlement of Insurance Claims
Issue 5—Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies
Issue 6—Distributions Received from Equity Method Investees
Issue 7—Beneficial Interests in Securitization Transactions
Issue 8—Predominant Cash Receipts and Cash Payments
Issue 9—Restricted Cash
 

Due Process Documents

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

*Decisions Reached at Last Meeting (December 11, 2015)

The Board ratified the consensus-for-exposure reached at the November 12, 2015 EITF Meeting. The Board directed the staff to draft a proposed Accounting Standards Update reflecting the consensus-for-exposure for vote by written ballot. The Board decided to expose the proposed Update for Issue 15-F for public comment for a period of 60 days.

The Board also approved the EITF’s decision to address the Statement of Cash Flows subissue on Restricted Cash in a separate EITF Issue.

*Summary of Tentative Decisions Reached to Date (As of December 11, 2015)

Issue 1—Debt Prepayment or Debt Extinguishment Costs
The Task Force reached a consensus-for-exposure 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 consensus-for-exposure that, at settlement, the portion of the cash payment attributable to the accreted interest should be classified as cash outflows for operating activities, and the portion of the cash payment attributable to the principal should be classified as cash outflows for financing activities.

Issue 3—Contingent Consideration Payments Made after a Business Combination
The Task Force reached a consensus-for-exposure 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. Specifically, the payments, or the portion of the payments, up to the amount of the contingent consideration liability recognized at the acquisition date, including measurement-period adjustments, should be classified as cash outflows for financing activities if the payment was not made soon after the business combination occurred. Amounts paid in excess of the amount of the contingent consideration liability recognized at the acquisition date, including measurement-period adjustments, should be classified as cash outflows for operating activities if the payment was not made soon after the business combination occurred.

Issue 4—Proceeds from the Settlement of Insurance Claims
The Task Force reached a consensus-for-exposure that a reporting entity should classify the proceeds received from the settlement of insurance claims, excluding proceeds received from corporate-owned life insurance policies and bank-owned life insurance policies, on the basis of 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 5—Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies
Subissue 6a—Aligning the Classification of Premiums and Proceeds for COLI Policies
The Task Force reached a consensus-for-exposure that cash proceeds received from the settlement of corporate-owned life insurance policies should be classified as cash inflows from investing activities. The Task Force also reached a consensus-for-exposure to permit, but not require, alignment of the classification of premiums paid with the classification of proceeds received for these types of policies.

Issue 6—Distributions Received from Equity Method Investees
The Task Force reached a consensus-for-exposure that all distributions received from an equity method investee are presumed to be returns on investment and classified as cash inflows from operating activities unless the investor’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor (as adjusted for amortization of basis differences). When such an excess occurs, the current-period distribution up to this excess is considered a return of investment and classified as cash inflows from investing activities. The consensus-for-exposure does not address equity method investments measured using the fair value option.

Issue 7—Beneficial Interests in Securitization Transactions
The Task Force reached a consensus-for-exposure to require disclosure of a transferor’s beneficial interest obtained in a securitization of financial assets as a noncash activity.

The Task Force also reached a consensus-for-exposure that cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities.

Issue 8—Separately Identifiable Cash Flows and Application of the Predominance Principle
The Task Force reached a consensus-for-exposure to provide additional guidance that clarifies when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgment is required to estimate and allocate cash flows) and when an entity should classify the aggregate of those cash receipts and payments into one class of cash flows based on predominance. In applying the additional guidance, the classification of cash receipts and payments should be determined first by applying specific guidance in Topic 230 and other applicable Topics. In the absence of specific guidance, a reporting entity should determine each separately identifiable source (for inflows) or each separately identifiable use (for outflows) within the cash receipts and cash payments based on the nature of the underlying cash flows. A reporting entity should then classify in financing, investing, or operating activities the cash receipts and payments for each nature that was separately identified. In situations in which cash receipts and payments have aspects of more than one class of cash flows and those aspects cannot be separately identified by their nature, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item.

The Task Force also reached a consensus-for-exposure to not require specific disclosures when classification is based on the predominant cash flow.

Issue 9—Restricted Cash
The Task Force decided to address Restricted Cash in a separate EITF Issue.

*Next Steps

The staff is in the process of drafting a proposed Accounting Standards Update, which is expected to be issued in early 2016.

The Task Force will address the subissue on Restricted Cash in a separate EITF Issue.

*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.

*December 11, 2015
Board Meeting
EITF Ratification Minutes
*November 12, 2015
EITF Meeting
EITF Meeting Minutes
Issue Summary No. 1, Supplement No. 2
Issue Summary No. 1, Supplement No. 3
September 17, 2015
EITF Meeting
EITF Meeting Minutes
Issue Summary
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 1, 2015
Board Meeting
Board Meeting—Discussion about the clarification of certain existing principles
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

*Contact Information

Mark Pollock
EITF Coordinator
mapollock@fasb.org

Jenifer Wyss
Project Manager
jjwyss@fasb.org

Jin Koo
Practice Fellow
jkoo@fasb.org

Alexis Tanoue
Postgraduate Technical Assistant
actanoue@fasb.org

Andrew McClaskey
Postgraduate Technical Assistant
awmcclaskey@fasb.org