As part of its ‘disclosure initiative’, the IASB has issued a new exposure draft proposing amendments to IAS 7 Statement of Cash Flows.
These amendments would address investor requests for more information on a company’s net debt by providing more useful information on changes in the company’s liabilities that relate to cash flows from financing activities.
The proposed amendments would require companies to provide a reconciliation of net debt in the financial statements.
Specifically, companies would need to reconcile cash flows arising from financing activities as reported in the statement of cash flows – excluding contributed equity – to the corresponding liabilities in the opening and closing statements of financial position.
The proposed amendments would also require additional disclosure about information that is relevant to an understanding of the liquidity of a company.
This includes any restrictions that would affect the decision of a company to use its cash and cash equivalent balances in a particular way – e.g. any tax liabilities that would arise on repatriation of foreign cash and cash equivalent balances.
“The IASB’s proposed amendments represent another positive step towards providing disclosures that are more valuable to users.”
The exposure draft does not propose an effective date, which is not unusual. Early adoption would be allowed. However, companies that wish to enhance their disclosures in this area are able to do so under existing standards – for example, as additional voluntary disclosures.
With the comment period having ended on 17 April 2015, discussions are ongoing.
As part of the disclosure initiative’s short-term projects to improve disclosures, the proposed amendments to IAS 7 are joined by final amendments to IAS 1 Presentation of Financial Statements, which address, among others, some perceived problems with current disclosure requirements.
In addition, medium-term research projects are planned:
More broadly, the IASB is considering presentation and disclosure as part of its revisions to its Conceptual Framework for Financial Reporting. The disclosure initiative complements the Board’s efforts in this respect.
Although not part of the disclosure initiative, a recent related development in this area is the short-term project to clarify guidance on the classification of liabilities in IAS 1, as set out in proposed amendments released in February 2015. We provide our insights on these proposals in our article and related In the Headlines.
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