Top PDF Accounting Shenanigans on the Cash Flow Statement

Accounting Shenanigans on the Cash Flow Statement

Accounting Shenanigans on the Cash Flow Statement

Copyright © Irfanullah Financial Training. All rights reserved. Page 3 Traditionally, investors have used the income statement and balance sheet to base their investment decisions. Companies have exploited this knowledge to engage in aggressive accounting practices (accelerate revenue recognition, deferred expenses to name a few) to inflate earnings. When evaluating a company, investors should scrutinize the quality of cash flows, and not just the income statement. The cash flow statement, however, is not immune to manipulation. This reading describes the numerous ways in which a cash flow statement can be manipulated.
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A Case Study Of The Cash Flow Statement: US GAAP Conversion To IFRS

A Case Study Of The Cash Flow Statement: US GAAP Conversion To IFRS

1. IFRS disallows the use of LIFO as an acceptable accounting method. LIFO is allowed under US GAAP, and if used for financial reporting purposes, has to be used for tax purposes: known as the conformity rule. In this case, IFRS will require the use of FIFO and the differential between the cost of goods sold and pre-tax total between LIFO and FIFO will equal the difference in the beginning and the end of year LIFO Reserve. This amount is $19,000 less $15,000, which equals an increase in pre-tax income under FIFO, by virtue of a higher ending inventory total and lower cost of goods sold amount of $4,000. At a tax rate of 25 percent, this amounts to a greater cash tax payment under FIFO of $1,000. This will cause a decrease in cash flow under IFRS by virtue of FIFO use. Cash will be reduced by $1,000 to $52,000.
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Cash Flow Statement as an Evidence for Financial Distress

Cash Flow Statement as an Evidence for Financial Distress

Black states that, in the start up and decline life cycle stages operating cash flow is expected to be negative, since the companies would likely to face financial difficulties during these stages in funding their obligations. On the contrary, cash flow from operations is expected to be positive in the growth and mature stages, since the companies would likely to generate cash in these periods. Meanwhile cash flow from financing is expected to be positive in the early life cycle stages and turn out to be negative in the later stages. In addition, cash flow from investing is expected to be negative in the early stages while positive in the later stages. Black also includes earnings as an additional indicator other than cash flow components and reveals that, in the start up and decline life cycle stages earnings are expected to be negative, while in the growth and mature phases earnings would be positive. The researcher classifies life cycle stages considering the sales growth, capital expenditure, dividend payout and age of firms. For instance, a firm is classified in the growth stage if it is in the highest quintile of the combined score for sales growth and capital expenditure and in the lowest quintile of the combined score of dividend payout and firm age. On the contrary, a firm is classified in the mature stage if it is in the middle quintile of the combined score of sales growth and capital expenditure while in the highest quintile on dividend payout and in the middle quintile on firm age. As a conclusion, Black finds that, start up stage shows limited usefulness of earnings and cash flow accounting information.
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How To Write A Cash Flow Statement Of Abengoa

How To Write A Cash Flow Statement Of Abengoa

- IAS 23 (revised in 2007), “Interest Costs”, which is to be applied to all periods commencing as of 1 January 2009. This modification is pending approval by the European Union. The revised standard requires that interest costs directly attributable to the acquisition, construction or production of a qualifying asset (that which requires, specifically, a substantial amount of time prior to being ready for use or for sale) are capitalised as an element of the cost of the asset. The previously existing option to recognise such financing costs in the period in which they are incurred no longer exists. The Group does not see itself as affected by this modification (were it to be adopted by the European Union), as its accounting policies already require that financial costs relating to qualifying assets are capitalised, which is the alternative treatment as allowed by the existing IAS 23.
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THE CASH-FLOW STATEMENT BETWEEN TRUE AND MANIPULATION

THE CASH-FLOW STATEMENT BETWEEN TRUE AND MANIPULATION

The advantage of a cash flow statement, when used in conjunction with the rest of the financial statement, is that it provides information that enables users to evaluate the changes in the net assets of an enterprise, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful for assessing the ability of an enterprise to generate cash and cash equivalents and it also enables users to develop models to assess and compare the present value of future cash flows of different entities. It also enhances the comparability of the reporting of operating performance by different entities because it eliminates the effects of applying different accounting criteria for the same transactions and events. Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and for examining the relationship between profitability and net cash flow and the impact of changing prices.
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Cash Flow Statement of Financial Statements in Romania

Cash Flow Statement of Financial Statements in Romania

The advantage of a cash flow statement, when it is used in conjunction with the rest of the financial statement, is it provides information that enables users to evaluate the changes in the net assets of an enterprise, its liquidity and solvency and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful for assessing the ability of an enterprise to generate cash and cash equivalents and it also enables users to develop models to assess and compare the present value of future cash flows of different entities. It also enhances the comparability of the reporting of operating performance by different entities because it eliminates the effects of applying different accounting criteria for the same transactions and events. Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and for examining the relationship between profitability and net cash flow and the impact of changing prices.
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Moody s Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations Part I

Moody s Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations Part I

We are also amending our adjustment for operating leases to increase the amount of capital expenditures compa- nies report on the cash flow statement to reflect the spending needed to support the business. We based our former approach, which did not affect capital expenditures, on how accounting rules report capital leases, viewing them as non-cash transactions at inception of the lease. Although consistent with accounting rules, not recognizing capital expenditures for leases understates the amount of capital assets and spending needed to support the business. This, in turn, overstates certain credit-relevant metrics, such as free cash flow. As a rough approximation of capital expenditures related to leasing, we will assume that operating leases increase capital expenditures by the amount of depreciation we attribute to the leased assets.
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Does Industry Affect the Cash Flow Statement Presentation Format?

Does Industry Affect the Cash Flow Statement Presentation Format?

SFAS 95 was passed in late 1987 and became effective in July 15, 1988. Before the SFAS 95, the Accounting Principles Board Opinion No. 19 (APB 19) required firms to disclose the changes in financial position, which was often called “funds statement.” IM disclosure reflects lots of disclosure requirements in the APB 19. Therefore, the supporters of IM claimed that IM was more consistent with what was used in the past. APB 19 required firms to disclose the main sources and uses of capital of chances in financial position, including the disclosure of funds from operations. However, there were many criticisms of APB 19. The major criticism was that the funds were not well defined. Some firms defined fund as working capital, but others defined it as cash. In addition, APB 19 required firms to disclose the funds from operations, but did not clearly define the operations. Accordingly, there was serious inconsistency among firms in presenting the funds statement. Since the funds statement was criticized, there was a shift from focusing on working capital to cash flows during the late 1970’s and early 1980’s. In 1981, FASB issued an exposure draft on reporting income, cash flows and financial position and defined the fund as cash instead of working capital. Finally, the SFAS 95 was passed in 1987 and became effective in July 15, 1988. “The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period” (SFAS 95, para 4).
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School of Aviation Finance. Accounting for Leases. Ronan Doyle, Partner, PricewaterhouseCoopers

School of Aviation Finance. Accounting for Leases. Ronan Doyle, Partner, PricewaterhouseCoopers

Slide 9 Practical Implications Balance Sheet Assets Liabilities Income statement Lease expense Depreciation Interest expense EBIT EBITDA EBITDAR EPS. Cash flow statement Cash from [r]

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Committed to health. Annual Report 2006

Committed to health. Annual Report 2006

We have audited the consolidated financial statements prepared by the Celesio AG, comprising the balance sheet, the income statement, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report, which is combined with the management report of the Celesio AG for the business year from 1 January to 31 December 2006. The preparation of the con - solidated financial statements and the combined management report in accordance with the IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (para graph) 1 HGB [”Handelsgesetzbuch”: German Commercial Code] are the responsibility of the parent Company’s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated financial statements and the combined management report based on our audit. We conducted our audit of the consolidated financial statements in accor- dance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaft- sprüfer (Institute of Public Auditors in Germany, IDW). Those standards require that we plan and perform the audit such that misstatements materi- ally affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the combined manage- ment report are detected with reasonable assurance. Knowledge of the busi- ness activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the de- termination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company´s Board of Managing Directors, as well as evaluating the overall presentation of the consolidated financial statements and the combined management report. We believe that our audit provides a reasonable basis for our opinion.
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US GAAP Conversion To IFRS:  A Case Study Of The Cash Flow Statement

US GAAP Conversion To IFRS: A Case Study Of The Cash Flow Statement

International Reporting Standards (IFRS) has become the required framework for most of the world financial market economies as of January 1, 2011. This includes, in a non-comprehensive listing, the many European Union countries - Canada, Australia and New Zealand. In the United States, US Generally Accepted Accounting Principles (GAAP) is still required. However, plans are presently in place by the SEC to abandon US GAAP and to adhere to IFRS requirements by as early as for the period ending December 31, 2014. As such, it is important to introduce IFRS accounting rules in the college curriculum and make it a major component of accounting classes. This case study takes a US GAAP Prepared Cash Flow Statement and, based on the facts of the case, requires students to prepare an IFRS-based Cash Flow Statement. The need to understand both US GAAP and IFRS rules is required to adequately address this case study, which is most suitable for an Intermediary Accounting, Accounting Theory and a Financial Statement Analysis class, as well as an Investment Finance course, at the graduate level.
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Privatisation of the shipping industry in Vietnam : the benefit, problems and proposals

Privatisation of the shipping industry in Vietnam : the benefit, problems and proposals

Ministry of Finance in China make the cash flow statement one of the required statements in financial reports. In the opinion of many, this change was long overdue. The information provided by cash flow statements is important both to shareholders, part of whose investment return (dividends) is dependent on cash flows, and also to lenders, whose interest payments and principal repayment require the use of cash. The welfare of other constituencies of a company depends to varying degrees on the company’s ability to generate adequate cash flows to fulfil its financial obligations. Recently, Hitachi Ltd. and Toshiba Corporation in Japan have adopted US practices of using cash flow as a focal point of management strategy. The companies’ ability to manage cash effectively has been put on a priority as a result of the decrease in bank lending and the introduction of new consolidated accounting rules. Therefore, managers as well as creditors and investors clearly need a cash flow statement, which summarises the major sources and uses of cash during the period.
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A Study on Accounting Standard 3 (Cash Flow Statement ) and its Implication on Financial Statements with Special Reference to Rittal India Pvt Limited

A Study on Accounting Standard 3 (Cash Flow Statement ) and its Implication on Financial Statements with Special Reference to Rittal India Pvt Limited

The Term cash flow statement is prepared by an entity; it is one of the most important statements. It shows cash receipts from major sources and cash payments for major uses during a period. It may be prepared at quarterly intervals but at least at yearly intervals. It provides useful information about an entity’s activities in generating cash from operations. It informs about programme to repay debts, distribute dividends or reinvest to maintain or expand its operating capacity. It gives also information about its financing activities, both debt and equity, and about its investment in fixed assets or current assets other than cash. In other words, a cash flow statement lists down various items and their respective magnitude which bring about changes in the cash balance between two balance sheet dates. All the items whether current or non-current which increase or decrease the balance of cash are
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US GAAP Conversion To IFRS: A Case Study Of The Cash Flow Statement

US GAAP Conversion To IFRS: A Case Study Of The Cash Flow Statement

International Reporting Standards (IFRS) has become the required framework for most of the world financial market economies as of January 1, 2011. This includes, in a non-comprehensive listing, the many European Union countries - Canada, Australia and New Zealand. In the United States, US Generally Accepted Accounting Principles (GAAP) is still required. However, plans are presently in place by the SEC to abandon US GAAP and to adhere to IFRS requirements by as early as for the period ending December 31, 2014. As such, it is important to introduce IFRS accounting rules in the college curriculum and make it a major component of accounting classes. This case study takes a US GAAP Prepared Cash Flow Statement and, based on the facts of the case, requires students to prepare an IFRS-based Cash Flow Statement. The need to understand both US GAAP and IFRS rules is required to adequately address this case study, which is most suitable for an Intermediary Accounting, Accounting Theory and a Financial Statement Analysis class, as well as an Investment Finance course, at the graduate level.
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Quarterly Update and Appendix 4C for the period ending 31 March 2020

Quarterly Update and Appendix 4C for the period ending 31 March 2020

2. If this quarterly cash flow report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly cash flow report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standard applies to this report.

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True or False: A statement of cash flow (SCF) documents the changes in a company s cash position over an accounting period.

True or False: A statement of cash flow (SCF) documents the changes in a company s cash position over an accounting period.

• Operating Activities plus Investing Activities plus Financing Activities equals the change in Net Cash (also called the Funds Flow) during the reporting period. • Net Cash at a point[r]

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Financial Education. Accounting 101. Qualifications 5/12/2015. Basic Financial Statements Beginning Accounting. Notfor CPAs and CFOs

Financial Education. Accounting 101. Qualifications 5/12/2015. Basic Financial Statements Beginning Accounting. Notfor CPAs and CFOs

A cash flow statement, also known as statement of cash flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.

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IAS 1 Presentation of Financial Statements   A Closer Look

IAS 1 Presentation of Financial Statements A Closer Look

representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework for the Preparation and Presentation of Financial Statements. The application of IFRSs (i.e. Standards and Interpretations), with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. IAS 1 requires that an entity whose financial statements comply with IFRSs make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs.
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Financial Management. An Introduction

Financial Management. An Introduction

Cash flow to stockholders (in the form of dividends) is the only basis for valuation of the common stock shares. Since the goal is to maximize stock price, cash flow is more directly related than accounting income. • Accounting methods recognize income at

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Cash Flow Restatements: Stock Market Reaction to Overstated versus Understated Restatements

Cash Flow Restatements: Stock Market Reaction to Overstated versus Understated Restatements

Dividends can be associated with CFRs because SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, has historically led to classification issues with respect to dividends (Nurnberg, 2006) for firms that issue mandatorily redeemable preferred stock. Analysts’ cash flow forecasts are important for investors of firms where accounting, operating, and financing characteristics suggest that cash flows are useful in interpreting earnings and assisting in forecasting the firm’s future performance (Defond & Hung, 2003). Further, Lee (2012) finds that firms with CFRs are more likely to have at least one analyst cash flow forecast during the fiscal year. Prior research has found that bigger audit firms (i.e., Big N firms) have better financial resources, research facilities, superior technology, and more talented employees to undertake large company audits than smaller audit firms but also that they are more likely to be sued (Lys & Watts, 1994; Deis Jr & Giroux, 1992; Lennox, 1999), which can result in more conservative cash flow reporting.
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