business, finance, money, cashflow, cash, flow

Cash Flows

Quick win: Cash Flows

Investors use the cash flow statement to enhance their understanding of the other financial statements and many rely on it when assessing liquidity, solvency and the quality of earnings, as well as for forecasting.

Why cash flow information is important to the CRUF

While the focus of company conference calls and investor presentations may be primarily on items in the income statement, for users to really understand performance we need to be able to refer across all three primary statements. Key information should be made prominent on the face of the statement of cash flows, or should be clearly cross-referenced.

The CRUF sees two main problems with the cash flow statement: inconsistent category definitions across the primary financial statements and excessive aggregation on the face of the cash flow statement. 

It should be possible, in theory, for a user to derive the statement of cash flows from the other primary statements and the notes. However, the usefulness of the statement of cash flows is limited because it is missing information that is necessary to reconcile cash flows with the other primary statements. This means that users cannot forecast the statement of cash flows directly and, as a result, they typically build their own derived cash flow statements based on projected income statements and balance sheets rather than using the company’s reported cash flow statement. We would like the cash flow statement to be more relevant to users.

Some of our suggestions below are consistent with the proposals in the IASB’s Exposure Draft (ED) ‘General Presentation and Disclosures (Primary Financial Statements)’.

The current problem with disclosures and what the CRUF would like to see

Click the tabs below to reveal what CRUF would like to see for each of these current problems

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