Changes to the Presentation of Restricted Cash Flows
By Heather D. Hayes and Sarah R. Stanley, CPA
In November 2016, the FASB issued the Accounting Standards Update No. 2016-18 to address the lack of consistency in presenting changes in restricted cash on the statement of cash flows.
This update clarifies that restricted cash will be included with cash and cash equivalents on the statement of cash flows to reflect a total change in cash for the reporting entity. Prior to the update, restricted cash activity could potentially be excluded from the total cash, and transfers to and from cash and cash equivalents would have been treated as investing or financing activities. The new standard eliminates this method of reporting changes in restricted cash to increase the consistency of financial reporting. In the year of implementation, the statement of cash flows will need to be updated to include beginning and ending cash, cash equivalents and restricted cash for all years presented.
Since the statement of cash flows will now include the change in cash, cash equivalents and restricted cash, a reconciliation to the statement of financial position line items may need to be disclosed in the financial statements if it is not apparent on the statement of financial position. The direct or indirect cash flow method may still be used.
The update is effective for public companies for years beginning after December 15, 2017. It is effective for years beginning after December 15, 2018 for all other entities. Please contact your service provider if you have any questions on how this presentation will impact the external financial statements for the entity you are working with.