New Accounting Rules Issued for Some Cash Receipts, Payments

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By Denise Lugo

Aug. 26 — New accounting provisions have been issued for eight targeted areas of cash receipts and payments in the cash flows statement, the Financial Accounting Standards Board said Aug. 26.

Depending on some companies' current practice, the new provisions might introduce significant changes for them.

FASB intends for the rules to clear up confusion and eliminate diversity in practice surrounding classifying items in the cash flows statement, such as payments to settle zero-coupon bonds. Zero-coupon bonds are a type of debt security that generally are issued or traded at significant discounts from their face amounts.

For public companies, the rules take effect Jan. 1, 2018, with earlier adoption permitted. Private companies have an additional year to apply them.

Settlement of Zero-Coupon Bonds

Diversity can occur in how cash payments made by a bond issuer at the settlement of zero-coupon bonds is classified, for example. This diversity stems from lack of guidance.

Interest on zero-coupon bonds isn't paid throughout the term of the bond, but is paid instead at maturity. Diversity in practice exists in how to classify the cash payment made by the bond issuer upon settlement of a zero-coupon bond. Specifically, diversity exists about how to classify the portion of the cash payment attributable to the accreted interest related to the debt discount.

The new rules require that the portion of the cash payment attributable to the accreted interest related to the debt discount should be classified as cash outflows for operating activities. Moreover, the portion of the cash payment attributable to the principal should be classified as cash outflows for financing activities.

The guidance also applies to other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.

Other Items

In addition to accreted-interest issue, the rules also provide clarifications to the following items:

  •  debt prepayment or debt extinguishment costs;
  •  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, including bank-owned life insurance policies;
  •  distributions received from equity method investees;
  •  beneficial interests in securitization transactions; and,
  •  separately identifiable cash flows and application of the predominance principle.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: Ali Sartipzadeh at

For More Information

For a copy of the rules go to

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