Coming Soon: Statement Of Cash Flows Fixes In March, the FASB released Accounting Standards Update No. 2016-15: “Classification of Certain Cash Receipts and Cash Payments.” How can that not grab your attention?
The standard giving rise to the cash flow statement originated in 1987, almost thirty years ago. Scores of standards have been issued since then, with tangential effects on the cash flow statement, but there’s never been a statement dedicated to fixing issues with the cash flow statement itself - until now. This standard cleans up eight issues that have led to diversity of practice in the composition of the cash flow statement. All of the modifications relate to the way certain transactions should be reported in the three cash flow statement classifications: operating, investing and financing.
It’s fair to believe that investor utilization of the cash flow statement has increased over the years, so any FASB pronouncement that might alter the balance between the three cash flow categories should grab their attention. Though the standard won’t be effective for public companies until years beginning after December 15, 2017, early adoption is allowed. Investors should get a handle on what the new standard could do to the cash flow statement so they make correct interpretations about a firm’s cash flow generating ability once firms begin adopting.
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