Are You Prepared for Statement of Cash Flow Changes Regarding Restricted Cash?– August 21, 2019 by Nevin Nussbaum

In November 2016, the Financial Accounting Standards Board issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. Although previously available for early adoption, this standard is required to be implemented by non-public companies with fiscal year-ends beginning after December 15, 2018 (calendar year 2019).
 
Historically, due to lack of guidance, there has been a diversity in the classification of restricted cash between operating, investing and financing activities on the statement of cash flows. This ASU is intended to provide consistency in this area. While the standard applies to all entities with restricted cash presenting a statement of cash flows, the real estate industry will be particularly impacted due to the common practice of lenders requiring escrows and reserves.
 
It’s important to note the ASU does not provide a definition of restricted cash and was not intended to change an entity’s consideration of restricted cash. However, what ASU 2016-18 does require is that a statement of cash flows explain the changes during the period of total cash, cash equivalents and amounts described as restricted cash. Amounts described as restricted cash now will be included in the “beginning-of-period” and “end-of-period” total amounts on the statement of cash flows. In addition, when cash, cash equivalents and restricted cash are presented in more than one line item within the balance sheet, the statement of cash flows or notes to the financial statements should provide a reconciliation of the line items of cash, cash equivalents and restricted cash on the balance sheet.
 
This ASU should be applied retrospectively to each period presented.  
 
Find more information and examples of the correct presentation in the full ASU.
 
Please contact a member of your service team, or contact Nevin Nussbaum nnussbaum@cohencpa.com for further discussion.
 
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.