Why a statement of cash flows, and for whom

Learning objectives

• Explain why all entities, including financial institutions, present a statement of cash flows as an integral part of their financial statements, and what this information provides (net assets, financial structure, comparability).L1

Normative references

• IAS 7 §1An entity prepares a statement of cash flows in accordance with the requirements of the Standard and presents it as an integral part of its financial statements for each period for which financial statements are presented.
• IAS 7 §3Users are interested in how the entity generates and uses cash and cash equivalents, regardless of the nature of its activities, including when cash may be viewed as the product of the entity (as for a financial institution): all entities need cash to conduct their operations, pay their obligations and provide returns to their investors; the Standard therefore requires all entities to present a statement of cash flows.
• IAS 7 §4When used with the other financial statements, the statement of cash flows enables users to evaluate the changes in net assets, the financial structure (liquidity and solvency) and the entity's ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances; it also enhances the comparability of operating performance between entities by eliminating the effects of different accounting treatments.
• IAS 7 §5Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows; it is also useful in checking the accuracy of past assessments and in examining the relationship between profitability and net cash flow and the impact of changing prices.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

9 questions

• An entity may present its statement of cash flows as an optional document, separate from its financial statements, provided it is published in the same year.L1
• A bank, for which cash is in a sense its stock in trade, is exempt from presenting a statement of cash flows.L1
• Used with the other financial statements, the statement of cash flows helps compare the operating performance of entities that apply different accounting treatments.L1
• Past cash flows are of no use in assessing the amount, timing and certainty of future cash flows.L1
• For which periods must an entity present a statement of cash flows?L1
• Why does the standard require a statement of cash flows from all entities, whatever their activities?L1
• Used with the other financial statements, what does the statement of cash flows notably help assess?L1
• An analyst compares the net cash flows achieved by Corlisse with those he had forecast two years earlier. Which use of cash flow information does this illustrate?L1
• Halrane, an insurance company, and Ulvenne, a bakery chain, are preparing their IFRS financial statements. Which of them must present a statement of cash flows?L1