FRRP alert on cash flow and capital management

Companies are struggling to meet the cashflow reporting requirements of IAS 7 and capital management disclsoures set out in IAS 1, according the Financial Reporting Review Panel (FRRP) annual report.

Published on 28 September, the FRRP annual report said that based on a sample of 301 accounts reviewed, the general quality of corporate reporting was good, “but there is still room for improvement”. Of the accounts reviewed, the panel sought further information and explanations from nearly half the companies (141), but only went public with press releases in four cases during the year.

The tone of the FRRP report was relaxed, but it did highlight a number of areas of concern. Critical comments about reporting cash flows under IAS 7 ‘Statement of Cash Flows’ are worth noting by the wider profession, because elements of this standard are being extended to the Financial Reporting Standard for Mid-Size Entities that will come into effect in 2013-14. The struggles of larger companies may provide pointers for those who have yet to enjoy the challenge of producing statutory cash flow statements.

Two of the four FRRP press releases issued during the previous year dealt with errors where companies incorrectly included funds from inappropriate activities in their operating cash flows. One of the public cases of a material understatement related to an incorrect presentation of the effect of exchange rate changes. The other public notice was prompted by the reclassification of a loan from long term to short term liabilities which was shown as a cash outflow with a corresponding inflow from investing operations.

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