Enhancing cash flow transparency will help users better understand a company’s financial health and future prospects, read our Point of View to find out more.
The statement of cash flows is regarded by many users of the financial statements in a number of industries as the most important financial statement and is often the foundation by which users evaluate a company’s performance. Accounting standards provide a principles-based framework for presenting sources and uses of cash. We support principles-based standards, although we recognize that their application can be complex. This often leads to diversity in how cash flows are reported and reduces the comparability of financial reporting. Therefore, disclosure of cash flow information is important to enhance the utility of the statement of cash flows.
Companies can improve the usefulness of their cash flow information—and enhance the understanding of their businesses—in a variety of ways, such as disclosing their cash flow presentation policies and the location of specific transactions within the statement of cash flows. Additional ways consist of providing a more robust and transparent discussion of the primary drivers of cash flow results, including cash inflows and outflows from operating activities, enhanced interim cash flow reporting, and more.
Enhancing the transparency of a company’s cash flow information will help users to better understand the company’s relative performance and increase the predictive value of its cash flow results. This may benefit the company in the form of greater access to the capital markets and a lower cost of capital.