At its May meeting, the IASB discussed its project on the Statement of Cash Flows and Related Matters.

Here are some of the decisions it took, as summarized in the IASB Update:

The IASB decided that it will assess potential ways to improve:

1. the disaggregation of cash flow information in the financial statements; 
2. the reporting of information about non-cash transactions in the financial statements; 
3. the transparency of information communicated about cash flow measures not specified in IFRS Accounting Standards; 
4. the consistent application of requirements to classify cash flows as operating, investing or financing; and
5. the consistent application of the definition of ‘cash equivalents’. 

The IASB decided it will not:

1. aim to redefine the operating, investing and financing categories;
2. aim to align the classification of cash flows in the statement of cash flows with the classification of related income and expenses in the statement of profit or loss, which is set out in IFRS 18 Presentation and Disclosure in Financial Statements;
3. define ‘growth and maintenance capital expenditures’;
4. define the measures ‘free cash flows’ or ‘net debt’;
5. expand the definition of ‘cash and cash equivalents’;
6. develop new requirements for cash flow information by segment;
7. develop specific requirements for offsetting cash flows;
8. develop alternatives to a statement of cash flows; or
9. amend the requirement in IAS 7 Statement of Cash Flows for an entity to present operating activities using the direct or the indirect method.

Of course, some of those items are intertwined: on the last item for instance, the thinking seems to be that more clarity in other aspects of the cash flow statement might reduce the argument for mandating the direct method (which, for many entities, would be a significant change to current practice). As set out in an underlying staff research paper:

• Some investors said information about operating cash flows using the direct method is useful, particularly for some items because it provides more accurate and transparent information about earnings quality that they must otherwise deduce using other methods.
• However, many investors and preparers said they preferred to continue to use or present information using the method currently used or provided. In our initial research most stakeholders used the indirect method…
• Most preparers using the indirect method raised concerns about the cost of change if the direct method presentation were required.
• We think the IASB should explore the feasibility and possible benefits of resolving perceived deficiencies with the method of reporting cash flows from operating activities.

For example, the paper notes, “disaggregated information about the changes in working capital would include elements of direct method operating cash flow information.”

Similarly, the intention to look at the consistent definition of “cash equivalents” somewhat mitigates the decision not to consider expanding that definition:

• Some stakeholders raised questions about the purpose of the statement of cash flows and whether a reconciliation of cash and cash equivalents is the best form of statement to meet that purpose. If the IASB decides to explore these questions in depth, it will require a wholistic review of the requirements in IAS 7. This would clearly involve a high level of complexity….
• An alternative approach that might be less complex might be to develop application guidance for the existing definitions of cash and cash equivalents, which might resolve many stakeholders’ concerns about diversity in application of the definition, without fundamental change.

Perhaps the single greatest impediment to accessing the additional perspective provided by a cash flow statement is to clog it up with items that don’t actually represent cash flows (the direct method would have an abiding advantage in this regard). Here’s some of what the research paper said on that front:

• We understand many investors forecast future cash flows by forecasting expected changes in assets and liabilities and deducing the required cash flows. Some investors seek information to be able to compare the cash flows of entities with ‘economically similar’ transactions. For example, to be able to compare an entity that purchases an asset by increasing its borrowing when an intermediary executes the transaction to another entity that completes the same transaction by receiving cash from a financial institution and paying cash to the vendor directly. Some investors seek to better understand why assets and liabilities changed in the year, for example, understanding the effects of business combinations or foreign exchange differences on the increase or decrease in the balance.

Even for information that is disclosed, there may be an accessibility issue:

• Some investors highlighted that IFRS Accounting Standards require disclosure of information about some non-cash transactions. For example, disclosures about share based payment transactions or business combinations. However, investors said this information can be difficult to find because it is included in notes with no cross reference in the statement of cash flows to these disclosures.

So they’ll look at that too. When will the new and improved cash flow statement be unveiled? Not soon!

The opinions expressed are solely those of the author.