Concerns over divergent practices for reporting on the statement of cash flows led to FASB's issuance of a new standard for presenting and classifying certain cash payments and cash receipts.
Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, provides guidance for eight specific cash flow issues:
- Debt prepayment or debt extinguishment costs.
- Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.
- 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.
- Separately identifiable cash flows and application of the predominance principle.
FASB issued the standard to clarify areas where GAAP has been either unclear or lacking in specific guidance.
The amendments take effect for public business entities for fiscal years beginning after Dec. 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments take effect for fiscal years beginning after Dec. 15, 2018, and interim periods within fiscal years beginning after Dec. 15, 2019.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the standard in an interim period, any adjustments are required to be reflected as of the beginning of the fiscal year that includes the interim period. An entity that elects early adoption is required to adopt all of the amendments in the same period.