Investors urge business to improve cash reporting

Companies must step up reporting of their cash positions or risk losing investor confidence, according to the Corporate Reporting Users' Forum (CRUF). They warn that disclosures are crucial as solvency issues come to the fore in times of financial crisis.

The CRUF is a discussion forum whose participants include individuals from both buy and sell-side institutions, and from both equity and fixed income markets with global or regional responsibilities.

Professional investors aim to reconcile elements of a company's profits and its balance sheet with its cash flow statement. This is because they want to understand exactly what real money the business is generating, and how much of that is easily available. However, they cautioned (in a letter to the Financial Times) that current accounting rules and practices leave them unable to fully assess a company's cash flows.

They advise that the main problems with current disclosure requirements are:

  • First, lack of reconciliation between cash flow and the change in net debt
  • Second, debt at acquired (and divested) companies is not always disclosed, and neither is currency impact on overall debt
  • Third, many line items are opaque, even to experienced investors

To find out what investors are looking for in corporate reporting, see our research with investors or talk to Alison Thomas.