Cash Flow Statement

A. Basis of Presentation

1. A cash flow statement (CFS) should be prepared in accordance with IAS 7 and presented as an integral part of an enterprise's financial statements for each period for which the financial statements are presented.

   (IAS 7, Para 1)

2. The CFS should report cash flows during the period, classified by

   1. Operating activities;

   2. Investing activities; and

   3. Financing activities.

   (IAS 7, Para 10)

B. Format

1. Cash flows from operating activities should be reported using either

   1. The direct method, under which major classes of gross cash receipts and gross cash payments are disclosed; or

   2. The indirect method, wherein net profit or loss for the period is adjusted for the following:

      1. The effects of noncash transactions;

      2. Any deferrals or accruals of past or future operating cash receipts or payments; and

      3. Items of income or expense related to investing or financing cash flows.

   (IAS 7, Para 18)

2. An enterprise should generally report (separately) major gross cash receipts and payments from investing and financing activities.

   (IAS 7, Para 21)

3. Under the following circumstances, however, an enterprise's^[1] cash flows arising from operating, investing, or financing activities may be reported on a net basis:

   1. Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise; and

   2. Cash receipts and payments for items in which the turnover is quick, the amounts are large, and maturities are short.

   (IAS 7, Para 22)

4. Cash flows arising from extraordinary items should be classified as either

   1. Operating activities;

   2. Investing activities; or

   3. Financing activities.

   Each of these items should be disclosed separately.

   (IAS 7, Para 29)

5. Cash flows from interest received and dividends received and dividends paid should be classified consistently (from period to period) as either

   1. Operating activities;

   2. Investing activities; or

   3. Financing activities.

   Each of these items should be disclosed separately.

   (IAS 7, Para 31)

6. In relation to cash and cash equivalents, a cash flow statement should

   1. Disclose the policy which it adopts in determining the components;

   2. Disclose the components; and

   3. Present a reconciliation of the amounts in its CFS with similar items reported in the balance sheet.

   (IAS 7, Paras 45 and 46)

7. The effect of exchange rate changes on cash and cash equivalents held or due in foreign currency should be presented separately from cash flows from operating, investing, and financing activities.

   (IAS 7, Para 28)

8. Noncash transactions arising from investing and financing activities should be excluded from the CFS. Such transactions do not require the use of cash and cash equivalents and thus should be disclosed elsewhere in the financial statements by way of a note that provides all the relevant information about these activities.

   (IAS 7, Para 43)

9. Cash payments and receipts relating to taxes on income should be separately disclosed and classified as cash flows from operating activities unless they could specifically be identified with financing and/or investing activities.

   (IAS 7, Para 35)

10. In relation to acquisitions or disposals of subsidiaries or other business units which should be presented separately and classified as investing activities, an enterprise should disclose the following:

    1. The total purchase or sale price;

    2. Portion of the consideration discharged by cash and cash equivalents;

    3. Amount of cash and cash equivalents acquired or disposed; and

    4. Amount of assets and liabilities (other than cash or cash equivalents) summarized by major category.

    (IAS 7, Para 40)

11. Significant cash and cash equivalent balances held by the enterprise which are not available for use by the group should be disclosed by the enterprise along with a commentary by management.

    (IAS 7, Para 48)

C. Additional Recommended Disclosures

Additional disclosures which may be relevant to financial statement users in understanding an enterprise's financial position and liquidity have been encouraged by IAS 7 and include the following:

1. The amount of undrawn borrowing facilities including disclosure of restrictions, if any, as to their use;

2. The aggregate amount of cash flows related to interests in joint ventures reported using the proportionate consolidation;

3. The aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain the operating capacity; and

4. Disclosure of segmental cash flow information in order to provide financial statement users better information about the relationship of cash flows of the business as a whole vis-a-vis cash flows from its segments.

(IAS 7, Para 50)

^[1]Cash flows of financial institutions may be reported on a net basis under the following cases:

1. Cash flows from the acceptance and repayment of deposits with fixed maturity dates:

2. Placement of deposits with and withdrawal of deposits from other financial institutions; and

3. Cash advances and loans made to customers and the repayment of those advances and loans.

(IAS 7, Para 24)