During the October 2017 SAPWG conference call, the working group accepted ASU 2016-18—Statement of Cash Flows: Restricted Cash to become effective for year-end 2019, with early adoption permitted. This article and video are a reminder that your upcoming 2019 statutory annual statement and future filings involving the Cash Flow statement will require the incorporation of the working group decisions. The adoption of the ASU incorporates non-substantive revisions to SSAP 69 – Statement of Cash Flow. Restricted cash or restricted cash equivalents are to be included in the same cash flow statement line as cash and cash equivalents. As far as disclosure direction, SAPWG noted the disclosure requirements provided in SSAP No. 1 – Accounting Policies, Risks & Uncertainties and Other Disclosures should provide preparers ample detail about restricted assets and the handling within the statutory annual statement.
From the GAAP perspective, the impact is generally more profound than the statutory process.Under current GAAP guidance, there is no direction addressing how to categorize and show changes in restricted cash or restricted cash equivalents that arise when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are specific cash receipts into restricted cash or restricted cash equivalents or specific cash payments made from restricted cash or restricted cash equivalents. Accordingly, when cash, cash equivalents, and amounts designated as restricted cash or restricted cash equivalents are shown in more than one line item within the balance sheet, a reporting company is required to indicate on the face of the statement of cash flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and amounts generally indicated as restricted cash or restricted cash equivalents reported within the balance sheet. This is to be completed for all periods being reported and shown. The disclosure can be handled either narratively or in table format.
This would potentially impact an insurance agency system more than it does an insurance carrier since an insurance agency typically receives cash payments that do not belong to them and which represent pass-through items. These amounts are restricted and need to be separated from agency operating cash. The ASU, in essence, states those restricted and unrestricted cash balances need to be combined for purposes of presenting cash flow. If you desire a presentation that separates, you need to have a reconciliation. Or, you combine and have a disclosure within the notes to the financial statements.