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FRC publishes a feedback statement on its Discussion Paper on improving the Statement of Cash Flows

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14 Jul 2017

The Financial Reporting Council (FRC) has published a feedback statement summarising respondents’ comments on its Discussion Paper on improving the Statement of Cash Flows.

The Discussion Paper, which was divided into five sections, was issued in October 2016 with the aim of identifying possible ideas to improve the usefulness of the statement of cash flows which is currently required by International Accounting Standard (IAS) 7 Statement of Cash Flows.  The feedback would then provide input to the International Accounting Standards Board (IASB) on its project on Primary Financial Statements.

The feedback statement indicates that “a large majority of respondents welcome[d] the publication of the Discussion Paper or agree[d] with most or some of its suggestions”.  Key messages include:

  1. The usefulness of information about cash flows – the majority of respondents agreed that notional cash flows should not be reported in the statement of cash flows although there should be disclosure of non-cash transactions.
  2. The classification of cash flows – a majority of respondents agreed that ‘operating activities’ should be positively defined or described.  Also a majority of respondents considered that all cash flows relating to financing liabilities should be reported in the financing category of the statement of cash flows and that there should be a separate section for tax.  Views were split as to whether or not capital expenditure should be reported within operating activities rather than as an investing activity.
  3. Cash equivalents and the management of liquid resources – views were split as to whether or not the statement of cash flows should report flows of cash or of cash and cash equivalents.
  4. Reconciliation of operating activities – the majority of respondents agreed that, in all cases, a reconciliation of operating activities should be presented.
  5. Direct or indirect method - the majority of respondents agreed that the direct method of cash flows should continue to be permitted.

The press release, full feedback statement and a letter from the FRC to the IASB are available on the FRC website.

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