FASB OKs Proposed Improvements to Cash-Flows Reporting

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By Steve Burkholder

June 29 — Energy and financial companies and a telecom giant generally support, with caveats, accounting guidance on several cash flow reporting issues that the Financial Accounting Standards Board plans to release in July.

FASB ratified the guidance, written with the help of the board's Emerging Issues Task Force, at its June 29 meeting that discussed EITF Issue No. 15-F; Proposed Accounting Standards Update, Statement of Cash Flows (Topic 230) and that it issued Jan. 29, 2016.

The board hopes to publish the final guidance by July 31.

FASB aims to cut diversity in accounting practice on how to classify certain cash receipts and cash payments in relatively narrowly-drawn situations.

The board doesn't foresee a substantial burden in new reporting duties because the changes to accounting prescriptions won't be significant for most entities, according to the January proposal that led to the final rules.

Public companies are to apply the new guidance in financial reporting for fiscal years starting after Dec. 15, 2017, and in interim periods within those fiscal years. All other entities will follow the planned rules for fiscal years starting after Dec. 15, 2018, and for interim periods starting after Dec. 15, 2019.

Companies' Concerns

Various companies in comment letters sent to FASB said they disagreed with a few of the collective views of EITF or sought clarification on at least one topic—the meaning of the term “soon after a business combination.” The phrase is part of a provision on contingent consideration payments made after a merger or acquisition.

Contingent consideration is payment that hinges on some event or condition, such as regulatory approval of a new medicine or compound. Contingent consideration deals are common in the pharmaceutical and life sciences sector.

One major company, ExxonMobil Corporation, and the National Association of Real Estate Investment Trusts disagreed with guidance related to distributions received from equity method investees.

Those companies and trade groups that formally commented on the proposed guidance included—along with ExxonMobil and NAREIT—Freddie Mac, AT&T, Inc; Wells Fargo & Company; The Williams Companies, Inc.; Morgan Stanley; PNC Financial Services Group Inc; and auditing firm BDO USA, LLP.

Miscellany of Cash Flows Topics

The list of issues addressed in the planned guidance are:

  •  debt prepayment or debt extinguishment costs;
  •  settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon rates;
  •  contingent consideration payments made after a business combination;
  •  proceeds from the settlement of insurance claims;
  •  proceeds from the settlement of corporate-owned life insurance policies;
  •  distributions received from equity method investees;
  •  beneficial interests in securitization transactions; and
  •  application of “the predominance principle.”

The predominance principle comes into play, FASB's staff wrote in an issue summary, “in situations in which cash receipts and payments have aspects of more than one class of cash flows.” The most appropriate classification of cash flows won't always be clear.

In such situations, the proper classification “depends on the nature of the activity that is likely to be the predominant source of cash flows for the item,” according to the issue summary.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For More Information

The issue summary on the EITF topic is available as a board meeting handout at http://src.bna.com/gny.

Comment letters on the January proposal are posted at http://src.bna.com/gnA

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