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EITF Amendments for Cash Flow Reporting Get Approved for Final Publication

The FASB agreed to finalize a decision from its Emerging Issues Task Force (EITF) to amend the cash flow guidance in U.S. GAAP and reduce some inconsistent practices in cash flow reporting. The FASB expects to publish the final update to U.S. GAAP in the relatively near future, but its exact publication date is uncertain, given the board’s need to publish some other documents first.

The FASB agreed at its June 29, 2016, weekly meeting to finalize a decision from its Emerging Issues Task Force (EITF) to amend the cash flow guidance in U.S. GAAP.

The FASB’s approval ratifies an EITF decision from June 10 to finalize the amendments in Proposed Accounting Standards Update (ASU) No. EITF-15F, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments — a Consensus of the FASB Emerging Issues Task Force. The amendments clarify eight issues within U.S. GAAP’s cash flow reporting requirements.

The FASB expects to publish the final update to U.S. GAAP in the relatively near future, but its exact publication date is uncertain, given the baord’s plan to publish some other documents, starting with a final update to amend to the guidance for not-for-profit organizations. The not-for-profit guidance is based upon Proposed ASU No. 2015-230, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities.

Proposed ASU No. EITF-15F included a range of amendments to reduce some inconsistent practices in cash flow reporting.

The changes include a decision to classify cash payments by borrowers to settle debts before they mature as financing costs. The EITF agreed that third-party costs, premiums paid to repurchase debt in the open-market, and fees paid to lenders should be included in the total costs.

The EITF also agreed to clarify the guidance for issuers of zero-coupon bonds for the classification of the bonds’ settlement costs. The portion of the payment attributable to the interest should be classified as an operating cost, and the portion of the payment tied to the bond’s principal should be classified as a financing cost.

The task force also agreed to amend the guidance for business combinations and declare that a cash payment made soon after an acquisition to settle some of the deal’s terms should be considered an investing cost. Later payments to cover some the acquisition’s terms should be considered as either financing or operating costs.

Proceeds from settling insurance claims should be classified based on the type of insurance coverage and the type of loss. For example, a claim to cover destruction of a building would be classified in investing activities while a claim to cover loss of inventory would be classified in operating activities.

For settlements from a life insurance policy owned by the company, the EITF said the proceeds should be classified as investment returns. The task force also said it is permissible to match the classification for the premiums and the policy’s payouts, but it is not requiring that they be aligned.

The task force also agreed to make minor revisions to equity method accounting and the sale of some interests in a securitized asset pool. The changes also include a clarification of the guidance for situations when cash receipts and payments should be classified into more than one category.

The FASB is required to ratify all EITF decisions before they can be published.

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