The IFRC Interpretations Committee (IFRIC) received a question on whether “restricted cash” could be classified as “cash and cash equivalents” for purposes of the cash flow statement and statement of financial position.
The fact pattern of the question is that the “restricted cash” is a demand deposit which is subject to contractual restrictions on it use which has been agreed with a third party.
- The terms and conditions of the demand deposit do not prevent the entity from accessing the amounts held in it (that is, were the entity to request any amount from the deposit, it would receive that amount on demand).
- The entity has a contractual obligation with a third party to keep a specified amount of cash in that separate demand deposit and to use the cash only for specified purposes. If the entity were to use the amounts held in the demand deposit for purposes other than those agreed with the third party, the entity would be in breach of its contractual obligation.
The IFRS Standards on Cash Flow Statements and Presentation of Financial Statements allow restricted cash to be included in cash and cash equivalents. The IFRIC tentatively concluded that the restrictions on use of a demand deposit arising from a contract with a third party do not result in the deposit no longer being cash, unless those restrictions change the nature of the deposit in a way that it would no longer meet the definition of cash and cash equivalents. For the fact pattern described, the contractual restrictions on use of the amounts held in the demand deposit do not change the nature of the deposit—the entity can access those amounts on demand. Presentation and disclosure of the restricted cash and its related terms and conditions may be important to users.
Although the question relates to the application of IFRS Standards, it may be relevant to similar transactions and events in the public sector. As this is a tentative decision of the IFRIC, there is an opportunity to comment on the Committee’s proposals. The comment deadline is the 25th of November. To access the decision, follow this link.
