The IASB Sets to Improve the Cash Flow Statement
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are actively pursuing projects aimed at enhancing the Statement of Cash Flows to provide more meaningful information to investors and financial statement users.
Why is an update necessary?
A significant concern raised by investors and preparers of financial statements is that many activities currently classified as investing or financing for nonfinancial institutions are considered operating activities for financial institutions. Activities such as accepting deposits and issuing loans, which are central to financial institutions' operations, are not adequately reflected in the operating section of the statement of cash flows. As a result, the statement may not always provide useful information for decision-making.
Additionally, investors have expressed the need for more detailed information about cash interest received, which would further improve the usefulness of these statements for financial decision-making.
Where We Are Now
In response to these concerns, the IASB has added a project to its technical agenda to make targeted improvements to the Statement of Cash Flows. The scope of the project includes:
Reorganising and disaggregating the statement of cash flows for financial institutions to improve its decision usefulness.
Developing specific disclosures related to cash interest received.
Similarly, the FASB has retained a project on its research agenda to explore additional improvements to the statement of cash flows for U.S.-based institutions.
The Next Steps
The IASB has tasked its staff with conducting further research and outreach to determine the range of entities that would be affected by these proposed changes. The project will also explore possible revisions to the definitions of investing and financing activities for financial institutions.
The IASB plans to review the research findings and consider the next steps during a future board meeting, while the FASB continues its own parallel efforts to improve the decision-usefulness of cash flow statements for investors.
Both projects signal significant potential changes ahead for financial reporting, and accountants should stay informed on these developments to prepare for any new requirements that could affect how cash flow information is presented.
