What happened in the reporting period

What happened in the reporting period

There is no requirement to disclose a summary of significant events and transactions that have affected the company’s financial position and performance during the period under review (or simply what happened in the reporting period). However, information such as this could help readers understand the entity’s performance and any changes to the entity’s financial position during the year and make it easier finding the relevant information. However, information such as this could also be provided in the (unaudited) operating and financial review rather than the (audited) notes to the financial statements.

At the time of writing, the biggest impact on the financial statements of entities all around the world is related to the COVID-19 pandemic. Most entities will be affected by this in one form or another and should discuss the impact prominently in their financial statements. However, as the events are still unfolding, this publication is not providing any illustrative examples or guidance. See how to account for Covid-19 to get an up-to-date discussion.

Going concern disclosures [IAS1.25]
When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.

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The Statement of Cash Flows

A Historical Perspective on the Statement of Cash Flows

In 1987, the Financial Accounting Standards Board (FASB) issued an accounting standard, FASB Statement no. 95, requiring that the statement of cash flows be presented as one of the three primary financial statements. Previously, companies had been required to present a statement of changes in financial position, often called the funds statement. In 1971, APC Opinion no. 19 made the funds statement a required financial statement although many companies had begun reporting funds flow information several years earlier.

The funds statement provided useful information, but it had several limitations. First, APB Opinion no. 19 allowed considerable flexibility in how funds could be defined and how they were reported on the statement. Read more

What can the Statement of Cash Flows tell you?

What can the Statement of Cash Flows tell you – The statement of cash flows, as its name implies, summarises a company’s cash flows for a period of time. The statement of cash flows explains how a company’s cash was generated during the period and how that cash was used. Even if the statement of cash flows seems to be a replacement for the income statement, the two statements have distinct objectives.

The income statement measures the results of operations for a period of time. Net income is the reporting entity’s best estimate representing a company’s economic performance for a period. The income statement provides details as to how the retained earnings account changed during a period and ties together, Read more

Trading in securities and loans

Trading in securities and loans – IAS 7 14 includes a number of examples of operating cash flows, including cash Trading in securities and loansreceipts and payments from contracts held for dealing or trading purposes. IAS 7 15 notes that when an entity holds securities and loans for dealing or trading purposes, those items are similar to inventory acquired specifically for resale. As a result, the cash flows arising from the purchase and sale of dealing or trading securities are classified within operating activities.

Consistent with this approach, IAS 7.16(c) and (d) require cash flows which relate to the or sale of equity or Read more

Cash flows for income tax and sales tax

Cash flows for income tax and sales taxCash flows for income tax and sales tax – IAS 7 includes some specific standards for the treatment of cash flows in the Statement of cash flows for income tax and sales tax (and other taxes).

(i) Income taxes

IAS 7.35 requires cash flows arising from income taxes to be disclosed separately, and classified within operating activities unless they can be specifically associated with financing or investing activities. Cash flows for income tax and sales tax

(ii) Sales taxes

IAS 7 does not provide guidance covering sales taxes (such as VAT or GST) that are collected by entities on behalf of third parties (typically governments). The approach adopted will vary, depending on whether the entity follows the direct or … Read more

Cash inflows and outflows offsetting

IAS 1 Presentation of financial statements paragraph 32 prohibits the offset of assets and liabilities, and income and expense, unless this is specifically required or permitted by another IFRS.

IAS 7 13 – 17 sets out requirements for, and examples of, individual cash inflows Cash inflows and outflows offsettingand outflows that are to be presented separately in respect of operating, investing and financing activities. The offset of cash inflows and outflows is not permitted (except in limited circumstances, that are relevant for financial institutions – see below), meaning that separate (gross) disclosure is required for cash flows, including those related to:

  • The purchase and sale of intangible assets, and items of property, plant and equipment
  • The drawdown and repayment of borrowings
  • The lending of
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Common cash flow classification errors in practice in 1 way

Common cash flow classification in practice – Although the definitions of operating activities, financing activities and investing activities may appear straightforward, in practice a number of classification are frequently made. These include: Common cash flow classification in practice

1. Cash outflows related to the of intangible assets and items of property, plant and equipment incorrectly included within operating Read more

Classification of cash flows

Classification of cash flows – IAS 7 10 requires an entity to analyse its cash inflows and outflows into three categories:

Operating activities

It is often assumed that this category includes only those cash flows that arise from an entity’s principal revenue producing activities.

However, because cash flows arising from operating activities represents a residual category, which includes any cash flows that do not qualify to be recorded within either investing or financing activities, these can include cash flows that may initially not appear to be ‘operating’ in nature (e.g. cash inflows from other revenue sources that are not from the sale of goods or rendering of services, such as proceeds … Read more

Concise information

Concise information - Other things being equal, where information is concerned, the shorter the better..... or better, it is a balancing act, full of dilemma's