What are the disclosure requirements of IAS 7 for Cash Flow Forecasting reports?

1. Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows as these items do not involve cash flows in the current period. Examples of non-cash transactions are:  

(a) the acquisition of assets either by assuming directly related liabilities or by means of a finance lease;  

(b) the acquisition of an entity by means of an equity issue; and

(c) the conversion of debt to equity.

2. The effect of any change in the policy for determining components of cash and cash equivalents, for example, a change in the classification of financial instruments previously considered to be part of an entity’s investment portfolio, is reported in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

3. An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group.

4. There are various circumstances in which cash and cash equivalent balances held by an entity are not available for use by the group2. Examples include cash and cash equivalent balances held by a subsidiary that operates in a country where exchange controls or other legal restrictions apply when the balances are not available for general use by the parent or other subsidiaries.

5. Additional information may be relevant to users in understanding the financial position and liquidity of an entity. Disclosure of this information, together with a commentary by management, is encouraged and may include: 

(a). the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities;

(b). the aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity; and  

(c) the amount of the cash flows arising from the operating, investing and financing activities of each reportable segment.

6. The separate disclosure of cash flows that represent increases in operating capacity and cash flows that are required to maintain operating capacity is useful in enabling the user to determine whether the entity is investing adequately in the maintenance of its operating capacity. An entity that does not invest adequately in the maintenance of its operating capacity may be prejudicing future profitability for the sake of current liquidity and distributions to owners.

Extracts from IAS7:

48 An entity shall disclose, together with a commentary by management, the amount

of significant cash and cash equivalent balances held by the entity that are not

available for use by the group.

50 Additional information may be relevant to users in understanding the financial

position and liquidity of an entity. Disclosure of this information, together with a

commentary by management, is encouraged and may include:

(a) the amount of undrawn borrowing facilities that may be available for

future operating activities and to settle capital commitments, indicating

any restrictions on the use of these facilities;

 (c) the aggregate amount of cash flows that represent increases in operating

capacity separately from those cash flows that are required to maintain

operating capacity; and

51 The separate disclosure of cash flows that represent increases in operating

capacity and cash flows that are required to maintain operating capacity is useful

in enabling the user to determine whether the entity is investing adequately in

the maintenance of its operating capacity.