Cash Flow Analysis and Forecasting: The Definitive Guide to Understanding and Using Published Cash Flow Data

5

Restating US GAAP Cash Flows

INTRODUCTION

In the United States all entities subject to the US Securities and Exchange Commission (SEC) control have been required to publish a cash flow statement as part of their statutory disclosure since 1998.

In Chapter 4 we analysed in detail the cash flow statement of Nokia, a business that has been reporting using IAS GAAP for some years.

Rather than repeating in detail the general issues involved in restating the operating, investing and financing cash flows into the recommended template, in this chapter we will look at the essential points of difference between the IAS GAAP restatement and a US GAAP restatement. This approach will also be used in the following chapters when discussing differences between types of GAAP and IAS.

This means if you have started with this chapter because you only wish to analyse a US GAAP cash flow, you should initially read Chapter 4 covering IAS GAAP restatement as well.

THE US GAAP CASH FLOW ANALYSIS PROCESS

We have a US GAAP cash flow statement to analyse, how do we go about our task?

There are two possible ways of preparing and presenting a cash flow statement, these are known as the direct method and the indirect method. The first task to ascertain is whether the cash flow is a direct cash flow or an indirect cash flow.

FAS 95 – Statement of cash flows – encourages US companies to use the direct method. Despite this guidance from the standard setters I have yet to come across a US GAAP cash flow ...