Background:
The Institute of Chartered Accountants of India (ICAI) has frequently observed discrepancies where financial reporting disclosures do not conform to statutory requirements or do not offer stakeholders a transparent depiction. Listed below are several identified deficiencies in reporting practices concerning Statement of Cash Flows (IND AS 7):
Shortcomings: IND AS 7 “Statement of Cash Flows”
| S. No. | Observation(s) | Remarks |
| 1. | company has not disclosed the amount of significant cash and cash equivalents that are not available for use. | Companies shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use. |
| 2. | Proceeds and repayment of term loans, current borrowings etc. were disclosed on a net basis in the statement of cash flows. Similarly, purchase / sale of investments in subsidiaries, sale/ purchase of PPE, were disclosed on net basis. | Except the mentioned below shall not be disclosed on net basis: cash receipts and payments on behalf of customerscash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. |
| 3. | company has not made the disclosure about changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. | Companies should disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.” |
| 4. | A statement of cash flows is not prepared by a certain organization. Further, in some cases incorrect terminology was used for statement of cash flow. | Correct terminology as per IND AS -7 is “Statement of cash flow” not “Cash Flow Statement” |
| 5. | Statement of cash flows were not reconciled with the cash and cash equivalents disclosed under the head ‘cash and bank balances’ in the balance sheet. | Companies should present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in the balance sheet. |
| 6. | Interest and dividend paid/received are disclosed together instead of disclosing them separately. | Cash flows from interest and dividends paid/ received shall each be disclosed separately. |
| SW Point of View: Companies should take steps to address the discrepancies proactively and ensure compliance with statutory provisions as Cash and cash Equivalent pose potential risk. |
