IFRS

Cash flow statements – avoiding the pitfall

Statement of Cash Flows

The phrase “cash is king” is not new but became even more relevant during the global financial crisis. For some the Statement of Cash Flows is the most important information in the financial statements, as it:

  • provides unbiased, objective information that is relatively free from estimation uncertainty
  • allows financial statement users to assess an entity’s past forecasts and use that information as the basis for future decision-making and future performance
  • allows financial statement users to compare performance of various entities across industries or geographic locations.

Cash flow reporting is addressed in International Financial Reporting Standards (IFRS) by International Accounting Standards (IAS) 7 ‘Statement of Cash Flows’ (IAS 7, the Standard). A Statement of Cash Flows is part of an entity’s complete set of financial statements in accordance with paragraph 10 of IAS 1 ‘Presentation of Financial Statements’ (IAS 1.10). Further, IAS 7 requires all entities to present a Statement of Cash Flows – with no exceptions (IAS 7.3).

The increasing attention on companies’ cash generation and liquidity position has led to
greater focus on the Statement of Cash Flows by financial statement users, regulators and other
commentators. However, this additional focus and scrutiny has also highlighted some common errors
and inconsistencies in the application of IAS 7.

Fortunately, the member firms within Grant Thornton International Ltd (GTIL) have gained extensive insights into the Statement of Cash Flows. Grant Thornton International, through its IFRS team, develops general guidance that supports its member firms’ commitment to high quality, consistent application of IFRS. We are pleased to share these insights by publishing ‘IAS 7: Statement of Cash Flows…a guide to avoiding common pitfalls and application issues’ (the Guide) to assist users in addressing difficult interpretative issues arising from the application of IAS 7.

Using the Guide

The objectives of the Guide are to:

  • remind management of the basic requirements of IAS 7
  • highlight interpretative and practical application issues
  • provide management with insights to address these issues.

To meet these objectives, the Guide is organised as follows:

  • Section A: IAS 7 at a glance
  • Section B: identifying cash and cash equivalents
  • Section C: Classifying cash flows as operating, investing or financing activties
  • Section D: Presentation issues
  • Section E: Group Cash flows
  • Section F: Foreign currency cash flows
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