Nov 2018 Q3 b.
An entity shall prepare a statement of cash flows in accordance with the requirements of IAS 7: Statement of Cash Flows and shall present it as an integral part of its financial statements for each period for which financial statements are presented.
Required:
Explain FOUR (4) benefits of cash flow information to users of financial statements. (4 marks)
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- Cash flow information is useful in assessing the ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different entities.
- It provides information that enables users to evaluate the changes in net assets of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the amounts of timing of cash flows in order to adapt to changing circumstances and opportunities.
- It also enhances the comparability of the reporting of operating performance by different entities because it eliminates the effects of using different accounting treatments for the same transactions and events.
- Cash flow information is often used as an indicator of the amount, timing and certainty of cash flows.
- It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.