The Financial Accounting Standards Board has published a new update to accounting standards to shore up diversity in how companies have classified and presented changes in restricted cash and a new proposal on stock compensation.

Accounting Standards Update No. 2016-18 require that the statement of cash flow explain changes in total cash, cash equivalents, and any amounts described as restricted cash or restricted cash equivalents. That means amounts described as restricted cash or restricted cash equivalents must be included with cash and cash equivalents when reconciling the beginning and ending amounts shown in the statement of cash flows.

FASB says existing U.S. Generally Accepted Accounting Principles do not provide specific guidance on cash flow classification and presentation of changes in restricted cash and restricted cash equivalents, so companies were following their own methods, which disrupts comparability across financial statements. Some companies, for example, reflect cash receipts and cash payments in bank accounts that hold restricted cash as cash inflows and outflows. Others describe those transactions as non-cash investing or financing activities.

Historic guidance also does not provide a specific definition of restricted cash or restricted cash equivalents, nor does the new guidance just finalized by FASB. Companies will be left to exercise their own judgment about what constitutes those specific categories of cash. The new guidance takes effect in 2018.

Separately, FASB also issued a new proposal meant to clarify and to reduce cost and complexity of compliance around rules on stock compensation and changes to the terms and conditions of new awards.

FASB says it has heard concerns that companies have followed different interpretations around whether a modification of a particular share-based payment award is substantive. That has lead to different decisions on whether to should apply modification accounting when terms and conditions of a particular award are changed.

The proposal would provide some criteria for companies to follow to help them determine more consistently across entities when modification accounting should be applied. The guidance would say companies should look to three yardsticks to determine whether modification accounting guidance should prevail.

FASB says companies would account for the effects of modification if a change to a particular award leads to no change in three specific areas, including the fair value of the award, the vesting conditions of the award, and the classification of the award as either an equity instrument or liability instrument. The board is accepting comments on the proposal through Jan. 6, 2017.

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