Statement of Cash Statement of Cash FlowsFlowsIAS 7IAS 7

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Statement of Cash FlowsStatement of Cash Flows

• Related standardsRelated standards• IAS 7IAS 7• Current GAAP comparisonsCurrent GAAP comparisons• Looking aheadLooking ahead• End-of-chapter practiceEnd-of-chapter practice

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Related StandardsRelated Standards

• HB 1540 Cash flow statementsHB 1540 Cash flow statements• HB 1651 Foreign currency HB 1651 Foreign currency

translationtranslation

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Related StandardsRelated Standards• FAS 95 Statement of cash flowsFAS 95 Statement of cash flows• FAS 102 Statement of cash flows—FAS 102 Statement of cash flows—

exemption of certain enterprises and exemption of certain enterprises and classification of cash flows from classification of cash flows from certain securities acquired for resalecertain securities acquired for resale

• FAS 104 Statement of cash flows—FAS 104 Statement of cash flows—net reporting of certain cash receipts net reporting of certain cash receipts and cash payments and classification and cash payments and classification of cash flows from hedging of cash flows from hedging transactionstransactions

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Related StandardsRelated Standards

• IAS 1 Presentation of financial IAS 1 Presentation of financial statementsstatements

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IAS 7 - OverviewIAS 7 - Overview

• Objective and scopeObjective and scope• Cash flowsCash flows• Reporting operating cash flowsReporting operating cash flows• Reporting investing cash flowsReporting investing cash flows• Reporting financing cash flowsReporting financing cash flows• Specific itemsSpecific items• DisclosuresDisclosures

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IAS 7 – Objective and IAS 7 – Objective and ScopeScope

• IAS 7 objective: to provide a statement IAS 7 objective: to provide a statement to help investors assess the prospects to help investors assess the prospects for future cash flows, and to confirm or for future cash flows, and to confirm or change their past expectationschange their past expectations

• Statement provides historical Statement provides historical information on the entity’s operating, information on the entity’s operating, investing and financing cash flows and investing and financing cash flows and how its cash balances have changed in how its cash balances have changed in the period as a resultthe period as a result

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IAS 7 – Cash FlowsIAS 7 – Cash Flows• Cash and cash equivalents:Cash and cash equivalents:

Cash on hand and on deposit and “short-Cash on hand and on deposit and “short-term, highly liquid investments that are term, highly liquid investments that are readily convertible to known amounts of readily convertible to known amounts of cash and which are subject to an cash and which are subject to an insignificant risk of changes in value”insignificant risk of changes in value”

• Can include bank overdrafts if part of cash Can include bank overdrafts if part of cash management activities and balance management activities and balance fluctuates between positive and negative fluctuates between positive and negative amountsamounts

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows

• Operating activities are the principal Operating activities are the principal revenue-producing activities; and revenue-producing activities; and those that are not investing or those that are not investing or financing activitiesfinancing activities

• Operating cash flows are important: Operating cash flows are important: surplus cash flows needed to invest surplus cash flows needed to invest in increased capacity, pay debt when in increased capacity, pay debt when due, and provide a return to due, and provide a return to shareholdersshareholders

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows

Operating cash flows:Operating cash flows:a)a) Cash received from customers for the Cash received from customers for the

sale of goods and provision of services, sale of goods and provision of services, or on account of royalties, fees, or or on account of royalties, fees, or commissionscommissions

b)b) Cash payments to suppliers for goods Cash payments to suppliers for goods and services provided; and to and on and services provided; and to and on behalf of employees for their servicesbehalf of employees for their services

c)c) Cash received from or paid for financial Cash received from or paid for financial instruments held specifically for dealing instruments held specifically for dealing or trading purposesor trading purposes

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows

Two methods:Two methods:• Direct methodDirect method• Indirect methodIndirect method

• Either allowed although preference Either allowed although preference for direct methodfor direct method

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows• Direct methodDirect method

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows

• Indirect method…same entity?Indirect method…same entity?

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows

Common adjustments to convert profit Common adjustments to convert profit or or

loss to cash from operations:loss to cash from operations:• Changes in working capital accountsChanges in working capital accounts• Elimination of non-cash itemsElimination of non-cash items• Elimination of investing and Elimination of investing and

financing itemsfinancing items

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IAS 7 – Reporting IAS 7 – Reporting Operating Cash FlowsOperating Cash Flows

What is used…direct method or indirect?What is used…direct method or indirect?KPMG : KPMG : The Application of IFRS: ChoicesThe Application of IFRS: Choices

in Practice – International Financial in Practice – International Financial Reporting StandardsReporting Standards, December , December

20062006

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IAS 7 – Reporting IAS 7 – Reporting Investing Cash FlowsInvesting Cash Flows

Investing activities:Investing activities:““the acquisition and disposal of long-the acquisition and disposal of long-

term assets and other investments not term assets and other investments not included in cash equivalents”included in cash equivalents”

Importance:Importance:Is the entity maintaining its capacity and Is the entity maintaining its capacity and

increasing the potential for increased increasing the potential for increased operating cash flows in the future?operating cash flows in the future?

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IAS 7 – Reporting IAS 7 – Reporting Investing Cash FlowsInvesting Cash Flows

Examples:Examples:

• Cash payments to acquire property, plant, and Cash payments to acquire property, plant, and equipment; intangibles; and other long-term assets, equipment; intangibles; and other long-term assets, including capitalized development costsincluding capitalized development costs

• Cash receipts from the disposal of items in (a)Cash receipts from the disposal of items in (a)• Cash payments to acquire debt and equity instruments Cash payments to acquire debt and equity instruments

of other entities or interests in joint ventures; of other entities or interests in joint ventures; excluding investments held for trading or in cash excluding investments held for trading or in cash equivalents equivalents

• Cash receipts from the disposal of items in (c)Cash receipts from the disposal of items in (c)• Cash advances and loans to other parties and their Cash advances and loans to other parties and their

cash repaymentscash repayments• Cash payments for and receipts from futures, Cash payments for and receipts from futures,

forwards, options and swaps unless they are held for forwards, options and swaps unless they are held for trading or are classified as financing flows. trading or are classified as financing flows.

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IAS 7 – Reporting IAS 7 – Reporting Investing Cash FlowsInvesting Cash Flows

• Example – Wienerberger AG, AustriaExample – Wienerberger AG, Austria

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IAS 7 – Reporting IAS 7 – Reporting Financing Cash FlowsFinancing Cash Flows

Financing activities:Financing activities:““result in changes in the size and result in changes in the size and

composition of the contributed equity composition of the contributed equity and borrowings of the entity”and borrowings of the entity”

Importance:Importance:Financing cash flows change the capital Financing cash flows change the capital

structure of the firm and affect the structure of the firm and affect the relative interests of those with claims relative interests of those with claims to future cash flows of the entityto future cash flows of the entity

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IAS 7 – Reporting IAS 7 – Reporting Financing Cash FlowsFinancing Cash Flows

• Example – Wienerberger AG, AustriaExample – Wienerberger AG, Austria

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IAS 7 – Specific ItemsIAS 7 – Specific Items• No netting of inflows and outflowsNo netting of inflows and outflows• Interest and dividends received and Interest and dividends received and

interest and dividends paid – choice interest and dividends paid – choice of operating, investing or financing of operating, investing or financing flows as appropriateflows as appropriate

• Income tax cash flows – generally Income tax cash flows – generally operating flowsoperating flows

• Non-cash transactions – not included Non-cash transactions – not included in statement; disclosed insteadin statement; disclosed instead

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IAS 7 – Specific ItemsIAS 7 – Specific Items• Cash flows between an entity and its Cash flows between an entity and its

subsidiaries, associates and joint subsidiaries, associates and joint ventures reported only if accounted ventures reported only if accounted for by the cost or equity methodfor by the cost or equity method

• Acquisition/loss of control of Acquisition/loss of control of subsidiary – investing cash flowsubsidiary – investing cash flow

• Exchange rate changes on foreign Exchange rate changes on foreign cash balances – reconciling item at cash balances – reconciling item at bottom of statementbottom of statement

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IAS 7 - DisclosuresIAS 7 - Disclosures

• Operating, investing, financing flowsOperating, investing, financing flows• Change in cash and cash equivalentsChange in cash and cash equivalents• Components of cash and cash Components of cash and cash

equivalentsequivalents• Reconciliation of change to amounts Reconciliation of change to amounts

on statement of financial positionon statement of financial position• Explanation of significant cash Explanation of significant cash

balances not available for usebalances not available for use

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Looking AheadLooking Ahead• Part of Phase B of Part of Phase B of Financial Statement Financial Statement

PresentationPresentation project project• Likely to link related items on each financial Likely to link related items on each financial

statement; e.g., business items (operating and statement; e.g., business items (operating and investing) and financing itemsinvesting) and financing items

• May move to explain change in cash only – May move to explain change in cash only – exclude cash equivalentsexclude cash equivalents

• May require use of direct method on statement May require use of direct method on statement with reconciliation to profit or loss in the noteswith reconciliation to profit or loss in the notes

• Phase B discussion paper expected in late 2008Phase B discussion paper expected in late 2008

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End-of-Chapter PracticeEnd-of-Chapter Practice

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End-of-Chapter PracticeEnd-of-Chapter Practice

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End-of-Chapter PracticeEnd-of-Chapter Practice

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End-of-Chapter PracticeEnd-of-Chapter Practice

•ICMAP STAGE 1,2,3,4• FUNDAMENTALS OF FINANCIAL

ACCOUNTING• ECONOMICS• FUNDAMENTALS OF COST

ACCOUNTING• FINANCIAL ACCOUNTING• COST ACCOUNTING PERFORMANCE

APPRAISAL• ADVANCED FINANCIAL ACCOUNTING

PIPFAPIPFAFOUNDATION,INTERMEDIATE,FINAFOUNDATION,INTERMEDIATE,FINA

LL• BASIC ACCOUNTINGBASIC ACCOUNTING• BASIC COST ACCOUNTINGBASIC COST ACCOUNTING• FINANCIAL ACCOUNTINGFINANCIAL ACCOUNTING• PERFORMANCE MEASUREMENTPERFORMANCE MEASUREMENT• FINANCIAL REPORTINGFINANCIAL REPORTING• MANAGEMENT ACCOUNTINGMANAGEMENT ACCOUNTING

COACHING CLASSESCOACHING CLASSES

• MA-ECONOMICSMA-ECONOMICS• B.COMB.COM• BBA & MBABBA & MBA• O/A LEVEL (ACCOUNTING)O/A LEVEL (ACCOUNTING)

KHALID AZIZKHALID AZIZ

0322-33857520322-3385752

R-1173,ALNOOR SOCIETY, BLOCK R-1173,ALNOOR SOCIETY, BLOCK 19, F.B.AREA, KARACHI, PAKISTAN19, F.B.AREA, KARACHI, PAKISTAN