A new proposal from the Financial Accounting Standards Board (FASB) aims to address the lack of clear guidance in how entities should report restricted cash on the statement of cash flows, but the NYSSCPA in a recently issued comment letter suggests a different way, and one that it says won’t come at the expense of clarity and readability for the financial statement user.

 Released in April, the FASB’s exposure draft, Proposed Accounting Standards Update—Statement of Cash Flows (Topic 230): Restricted Cash, proposes that entities report cash, restricted cash and their equivalents together when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows, where the entity explains any changes in the total cash, restricted cash, and their equivalents during the period.

The NYSSCPA is wary of this proposed solution, however, saying it could lead to confusion among financial statement users about just how much cash the entity has to work with since the balance as derived in the statement of cash flows will be greater than the cash balance presented in the balance sheet that excludes ‘restricted cash’ accounts

“We do not believe that the Proposed Update provides meaningful information that will explain changes during the period in the total cash that remains available for an entity to operate,” the Society wrote in its comment letter.

“There are some users, usually more sophisticated, who may have that ability. But it’s not really self-evident,” said Craig Goodman, chair of the Financial Accounting Standards Committee and one of the comment letter’s principal authors. “Our thought was… rather than leave it to the skill level of the user, let’s just explain it clearly,” he said.

Instead of putting cash and restricted cash together, the Society suggested that changes in the balance of restricted cash be reconciled in a note to the financial statements detailing the inflows and outflows involving third parties, as well as transfers to and from unrestricted cash accounts.

The disclosure, said Goodman, should describe in narrative form the amounts expected to be available for use over the 12-month period subsequent to the date of the financial statements.

“We thought these additional disclosures would help the reader understand the nature and use of the restricted cash account,” he said.

While he said the FASB proposal on the whole is an improvement, he felt that the Society’s suggestions would make for a clearer and more transparent presentation, which the FASB has been striving for over the years.

The AICPA, RSM, BDO, Delta Airlines, Ford Motor Company, Mastercard Incorporated, and the California, Maryland, Illinois and Massachusetts CPA societies also commented on this proposal. Read those comments and others, here.

 cgaetano@nysscpa.org