Wiley IFRS: Practical Implementation Guide and Workbook, 3rd Edition

Chapter 5

STATEMENT OF CASH FLOWS (IAS 7)

BACKGROUND AND INTRODUCTION

IAS 1, Presentation of Financial Statements, makes it incumbent upon entities preparing financial statements under International Financial Reporting Standards (IFRS) to present a statement of cash flows as an integral part of the financial statements. IAS 7, Statement of Cash Flows, lays down rules regarding statement of cash flows preparation and reporting. The statement of cash flows provides information about an entity’s cash receipts and cash payments (i.e., cash flows) for the period for which the financial statements are presented.

The statement of cash flows replaced the “fund flow statement,” which most accounting standards around the world (including the then International Accounting Standards) previously required to be presented as an integral part of the financial statements. The fund flow statement reported the movements or changes in funds. Certain standards interpreted the term “funds” as “net liquid funds;” most others, however, interpreted “funds” as “working capital.” Most standard setters revised their standards in favor of the statement of cash flows, probably due to the ambiguity in the interpretation of the concept of “funds” coupled with the growing importance of the concept of “cash generated by operations.” With the change in requirements, whereby an entity is required to report a statement of cash flows (in lieu of a funds flow statement) as an integral part of its financial statements, ...