The IASB recently announced “the start of a research project to review and improve the requirements for the statement of cash flows and related matters in IFRS Accounting Standards.”

This is in response to feedback during the IASB’s most recent agenda consultation, with investors, companies and others identifying this area as a high priority. The IASB “will now conduct its initial research, including meetings with stakeholders and review of existing studies, to gather evidence on the nature and extent of perceived deficiencies in current reporting and the likely benefits of developing new financial reporting requirements.” The IASB plans to determine the next steps for this project in the first quarter of 2025. Here’s the related material from the feedback statement issued on that most recent agenda consultation:

• Matters relating to the statement of cash flows to consider include both presentation issues (such as the classification of cash flows into operating, investing and financing activities) and other issues (including improved disclosures about non-cash movements, such as factoring of trade receivables and reverse factoring of trade payables). Also, the project could address some issues relating to the statement of cash flows that arose in the Primary Financial Statements project but which were outside its scope.
• …Many respondents rated a project on the Statement of Cash Flows and Related Matters as a high priority. Furthermore, user feedback indicates that they consider such a project to be the highest priority of all the potential projects discussed in the Request for Information.
• Stakeholders expressed a view that deficiencies in reporting exist. However, respondents expressed mixed views about the nature and extent of such deficiencies. For example, some respondents said the IASB should undertake a comprehensive review of IAS 7. Some other respondents were in favour of a more targeted approach, although they expressed different views on which issues should be addressed in a more targeted project. For example, they suggested that the IASB review the definition of cash and cash equivalents or require a company to explain any changes from the opening balance to the closing balance for all the balances brought forward from the previous reporting period.
• The matters raised by respondents are pervasive and acute, given the range and extent of issues that respondents raised about the statement of cash flows, which is a primary financial statement.
• A project on the Statement of Cash Flows and Related Matters will interact with some other projects—for example, the Supplier Finance Arrangements project includes proposals for some amendments to IAS 7 and is related to the matters raised by respondents about non-cash financing. A project on the Statement of Cash Flows and Related Matters is likely to be large and complex, particularly given the range of matters raised by respondents. Also, sometimes, questions may arise about the feasibility of some potential solutions. For example, the IASB has previously considered requiring use of the direct method. However, as part of this project, the IASB could consider the extent to which technological developments may alleviate record-keeping challenges raised by stakeholders in previous related projects.

Regarding the comment on considering requiring using the direct method, a 2008 discussion paper on preliminary views on financial statement presentation said the following:

• Although the boards understand users’ interest in the reconciling information an indirect method provides, they believe that the reconciling information is not a valid substitute for information about operating cash receipts and payments and that users need both types of information. The boards propose to meet users’ needs by requiring an entity:
• (a) to use a direct method to present information about operating cash flows.
• (b) to disaggregate comprehensive income in a schedule that reconciles the line items in the statement of cash flows to the line items in the statement of comprehensive income.
• Because the proposed reconciliation schedule would be prepared at the line-item level, it should provide a more complete picture of non-cash expenses compared with the existing indirect method schedule that reconciles profit or loss or net income to net cash flows from operating activities.

Which of course didn’t end up going anywhere. Anyway, the comment about technological developments may be one of the project’s more interesting aspects, as just about any comparison of the indirect and direct method of preparation (this one for example) cites the relative difficulty of the direct method as a comparative disadvantage. In the past I tended to think the direct method would be the superior one, practical difficulties aside, but maybe that’s not so clear from a decision-making perspective, if it requires too great a perceptual shift from the accrual-accounting-orientation of the other primary statements. Of course, the IASB could resurrect its 2008 ideas, or even impose a requirement to prepare a cash flow statement on both bases, but I doubt we should expect that…

The opinions expressed are solely those of the author.