The Financial Accounting Standards Board’s Emerging Issues Task Force has
Various stakeholders have told FASB there is some diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The proposed accounting standards update addresses eight specific issues to reduce that diversity in practice. For example, FASB acknowledged there is no specific guidance on the classification of cash payments for debt prepayment or extinguishment costs. Under the update, cash payments for debt prepayment or extinguishment costs would be classified as cash outflows for financing activities.
Another issue involves the settlement of zero-coupon bonds. Stakeholders told FASB there is no specific guidance on the classification of the cash payment made by a bond issuer at the settlement of a zero-coupon bond. Under the proposed solution, the portion of the cash payment attributable to the accreted interest would be classified as cash outflows for operating activities at settlement, and the portion of the cash payment attributable to the principal would be classified as cash outflows for financing activities.
Another issue involves the lack of guidance on the classification of cash payments made by an acquirer after a business combination for the settlement of a contingent consideration liability. Under the update, cash payments made by an acquirer that are not paid soon after a business combination for the settlement of a contingent consideration liability would be separated and classified as cash outflows for financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date would be classified as financing activities, while any excess would be classified as operating activities.
Other issues for which FASB is proposing solutions in the update involve proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and the application of the predominance principle in separately identifiable cash flows.
FASB is asking for comments on the
