FASB Proposes Amendments on Classification of Certain Cash Flows

Published on March 29, 2016

The FASB issued a proposal that aims to reduce diversity in practice in reporting on the following types of cash flows: 

  • Cash payments for debt prepayment or extinguishment costs would be classified as financing cash outflows. 

  • Cash payments made to settle a zero-coupon bond attributable to accreted interest would be classified as an operating outflow, and the portion attributable to principal would be classified as a financing outflow. 

  • Contingent consideration payments made after a business combination would be classified as financing outflows if they don’t exceed the acquisition-date fair value of the contingent consideration liability, and any payments that exceed the liability would be classified as operating outflows. 

  • Insurance settlement proceeds, including lump-sum settlements that relate to more than one type of loss, would be classified based on the nature of the loss. 

  • Company-owned life insurance settlement proceeds would be presented as investing cash inflows, and premiums could be classified as investing or operating cash outflows, or a combination of both. 

  • Distributions received from equity method investees would be presumed to be returns on investment and would be presented in operating inflows unless the cumulative cash distributions exceed cumulative equity in earnings recognized. 

  • A transferor’s beneficial interests obtained in a securitization of financial assets would be disclosed as a noncash investing activity, and cash receipts received related to beneficial interests in previously transferred trade receivables would be classified as investing inflows. 

The proposal would also provide additional guidance on the separation of cash flows into more than one classification and the classification in one class based on predominance. Comments on the proposal, which is based on a consensus of the Emerging Issues Task Force, are due 29 March 2016.