Alert: FASB Accounting Standards Update – Statement of Cash Flows: Restricted Cash

​On November 17, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The ASU seeks to reduce the diversity in practice by providing guidance on the classification and presentation of changes in restricted cash on the statement of cash flows. Particularly, clarifications are made to highlight the appropriate treatment for:

• Transfers between cash, cash equivalents and restricted cash.
• Direct cash receipts into/payments made from a restricted cash bank account.

This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash or restricted cash equivalent accounts. Therefore, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Receipts and payments of, and transfers in or out of, restricted cash are part of an entity’s cash management activities rather than its operating, investing and financing activities.

The amendments are effective as follows:

• Public business entities – fiscal years beginning after December 15, 2017, including interim periods therein.
• All other entities – fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.

Earlier adoption is allowed for all entities, including adoption in an interim period. If early adopting in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented.

To access the full script of ASU No. 2016-18, click here.​