FASB Finalizes Statement of Cash Flows Guidance on Classification of Earnings from Equity Method Investments

On Aug. 26, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force, providing guidance for areas where there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.

Among the eight items identified, the update addresses one issue that could impact NAREIT members. It cites the classification of distributions received from equity method investees as an area where there is diversity in practice and provides clarifying guidance in how these distributions should be presented in the statement of cash flows.

Consistent with one of NAREIT’s recommendations, the guidance provides companies with an alternative to consider the nature of the source of the distributions that the investor receives from an equity method investment when classifying distributions received in its cash flow statement (the nature of the distribution approach). Alternatively, companies can elect to classify the distributions received from equity method investees based on the cumulative earnings approach.

(Contact: Christopher Drula at cdrula@nareit.com)

 

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