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Chair Jones: FASB Studying Two Parallel Paths to Potentially Revise the Statement of Cash Flows

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

FASB Chair Richard Jones on June 1, 2023, said the board plans to decide “at some point in time” whether to revise the statement of cash flows—a key report filed with the SEC that reveals whether a company has enough money to meet its budgetary obligations in a reporting period.

A study of the statement of cash flows is currently on the board’s research agenda, a process it uses to examine a topic towards determining whether to add it to its technical rulemaking agenda.

“It was something we heard as part of our agenda outreach and we heard two general things—one was we heard from some that [were] looking for additional disaggregated information on the statement of cash flows,” Jones told the SEC and Financial Reporting Institute Conference, hosted by the Leventhal School of Accounting at the University of Southern California, which was livestreamed. “The other thing we heard was that the statement of cash flows was not necessarily the most helpful statement when it came to a company whose business was cash, so think about financial institutions and the groupings of cash flows for a financial institution,” he said. “So we’re looking at those on the research agenda—those two parallel paths.”

By the board’s “agenda outreach,” Jones was referring to the results of feedback the board obtained from Invitation-to-Comment (ITC) No. 2021-004Agenda Consultation, which signaled that investors want greater insight from a company’s statement of cash flows to project future operating results and cash flows. Some investors also specifically questioned the relevance of the statement of cash flows for financial institutions.

His remarks were in response to moderator Paul Beswick, partner, deputy chief accountant at Ernst & Young LLP, who observed that the statement of cash flows was a thorny and “very popular” topic. Beswick, also a member of the Financial Accounting Standards Advisory Council (FASAC), had also asked, “from your perspective is there something that the board should be working on an if so, what does that look like?”

The FASB has consistently heard from some investors in the past that they appreciate the information they typically get from commercial companies that use the indirect method, while other investors have wanted the board to get rid of that method and adopt the direct method, Jones also explained. “But what we’ve heard pretty strongly from I would say more investors was they value the indirect method and thought there may be some minor improvements we could make that could be helpful,” he said. “So exploring those two things—looking to see what would make sense in those two areas.”

The indirect method and direct method are two accounting approaches that are used to report on cash flows, but views differ about them.

Last year, the board discussed staff research to improve Topic 230Statement of Cash Flows; disaggregation of certain cash flow line items (specifically working capital and amortization/depreciation); and developing certain supplementary direct cash flow method disclosures. No decisions were made.

A conference attendee also flagged the cash flows topic in a question segment, asking via Beswick, “couldn’t there be a high-level way of getting a proxy for direct cash flows by adjusting ‘indirect’ by balance sheet changes?”

“So effectively requiring the indirect method to better map to the balance sheet?” asked Jones.

“Uh huh.”

“That is something that we’ve heard and, that is – [for] some entities it does map fairly closely and others it’s much more of a challenge,” Jones replied.


This article originally appeared in the June 5, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.

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