Handbook: Statement of Cash Flows

Statement of cash flows

Handbook

US GAAP May 2019 ______ us/frv

Contents

Foreword .................................................................................................

1

About this publication .............................................................................

2

1. Recent ASUs ..................................................................................

4

2. Objective and scope .......................................................................

15

3. Format of the statement ................................................................

21

4. Classification principles ..................................................................

35

5. Interim reporting .............................................................................

47

6. Cash, cash equivalents and restricted cash ...................................

53

7. Working capital accounts................................................................

78

8. PP&E and other productive assets .................................................

94

9. Investments....................................................................................

110

10. Securitizations and other transfers of financial assets ...................

126

11. Lending activities ............................................................................

137

12. Debt financing transactions for debtors .........................................

144

13. Derivative instruments ...................................................................

170

14. Leases ? Topic 842 .........................................................................

189

14A. Leases ? Topic 840 .........................................................................

216

15. Employee benefit plans ..................................................................

232

16. Share-based payment arrangements .............................................

237

17. Insurance premiums and proceeds ................................................

251

18. Business combinations...................................................................

258

19. Transactions with shareholders......................................................

277

20. Discontinued operations .................................................................

286

21. Foreign currency matters ...............................................................

293

22. NFP entities ....................................................................................

309

23. Other cash flow presentation matters ...........................................

323

Appendices

Index of Q&As ................................................................................

326

Index of examples ..........................................................................

340

KPMG Financial Reporting View .............................................................

343

Acknowledgments ..................................................................................

344

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Statement of cash flows

1

Foreword

A statement of importance

The statement of cash flows is a central component of an entity's financial statements. Potentially misunderstood and often an afterthought when financial statements are being prepared, it provides key information about an entity's financial health and its capacity to generate cash.

The underlying principles in Topic 230, Statement of Cash Flows, seem straightforward. Cash flows are classified as either operating, financing or investing activities depending on their nature. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny.

While diverse presentation practices have developed over time, the EITF clarified a series of classification issues in 2016. The consequential amendments to Topic 230 become effective for many companies in 2018. This is therefore a good time to visit or revisit the `how-tos' in preparing the statement of cash flows.

This Handbook provides an in-depth look at statement of cash flows classification issues and noncash disclosure requirements. We've organized it by transaction type, making it easier to identify the answers to the common and not so common questions that you may have. And for practical issues where the guidance remains unclear, we offer KPMG's position on how to classify many of these cash flows.

We hope you will find this Handbook to be a useful tool in preparing your own statement of cash flows.

Valerie Boissou and Tim Phelps Department of Professional Practice, KPMG LLP

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Statement of cash flows

2

About this publication

About this publication

The purpose of this Handbook is to assist you in understanding the standard on the statement of cash flows, Topic 230, and provisions in other Topics that affect the statement of cash flows.

Organization of the text

Each chapter of this Handbook includes excerpts from the FASB's Accounting Standards Codification? and overviews of the relevant requirements. Our indepth guidance is explained through Q&As that reflect the questions we encounter in practice. We include examples to explain key concepts.

Our commentary is referenced to the Codification and to other literature, where applicable. The following are examples:

-- 230-10-45-1 is paragraph 45-1 of ASC Subtopic 230-10.

-- 815-10-45-13 is paragraph 45-13 of ASC Subtopic 815-10.

-- IAS 20.24 is paragraph 24 of International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance.

-- ASU 2016-15.BC38 is paragraph 38 of the basis for conclusions to ASU 2016-15.

-- S-X Rule 10-01 is Rule 10-01 of SEC Regulation S-X.

-- FRM 6710.3 is section 6710.3 of the SEC Financial Reporting Manual.

-- FRR 220 is section 220 of the SEC Financial Reporting Releases.

-- C&DI 102.05 is Question 102.05 of the SEC's Compliance and Disclosure Interpretations: Non-GAAP Financial Measures

-- CA&DI II.C.2 is topic II.C.2 of the SEC's Current Accounting and Disclosure Issues in the Division of Corporation Finance

-- TQA 1300.03 is section 1300.03 of the AICPA's Technical Questions and Answers.

-- AAG-DEP.6 is chapter 6 of the AICPA's Audit and Accounting Guide for Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies.

-- AAG-NFP Ex 3-1 is Exhibit 3-1 of the AICPA's Audit and Accounting Guide for Not-For-Profit Entities.

-- 2006 AICPA Conf is the 2006 AICPA National Conference on Current SEC and PCAOB Developments.

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Statement of cash flows

3

About this publication

Pending content

This Handbook includes a number of Accounting Standards Updates that are not yet effective for all entities (see chapter 1). This pending content is dealt with as follows in the excerpts from the Codification.

-- Effective for public business entities only. With the exception of chapter 22, NFP entities, the Codification excerpts reflect these amendments ? i.e. the Codification is reproduced as if the pending content were currently effective for all entities.

-- Not yet effective for any entities (except early adopters). Pending content is labeled as such with a reference to the relevant effective dates and transition information.

Terminology

Throughout this Handbook, we use the phrase `cash flows from' to describe categories within the statement of cash flows, regardless of whether we are describing a cash inflow or a cash outflow (e.g. cash flows from operating activities).

When describing cash flows without explicit reference to a category within the statement of cash flows, we use the following terminology:

-- Cash outflows for is used to describe cash outflows.

-- Cash inflows from is used to describe cash inflows.

When describing a scenario where either a cash outflow or a cash inflow can result, we use the phrase `cash flows from/for'.

Abbreviations

We use the following abbreviations in this Handbook:

AFS Available-for-sale

HTM Held-to-maturity

NFP Not-for-profit entity

NCI Noncontrolling interest OCI Other comprehensive income

PP&E Property, plant and equipment

ROU VIE

Right-of-use (asset) Variable interest entity

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

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