The international cash flow accounting standard should be revised to help users of financial statements asses the liquidity, solvency and financial flexibility of companies. This is the conclusion of collaboration between academics and professional accountants on how statements of cash flows could evolve. 

The report by academics of the British Accounting and Finance Association’s Financial Accounting and Reporting Special Interest Group (FARSIG) reviewed empirical academic literature concluding that while the cashflow statement provides useful information, opportunities to improve include requiring supplementary disclosures such as a reconciliation of net debt. 

The Future of Financial Reporting 2026: The Statement of Cash Flows is timely as the topic is on the work programme of the International Accounting Standards Board (IASB) after user research found it was a high priority, a view backed by FARSIG during its annual symposium. 

 Christian Stadler, Associate Professor of Accounting and Finance, Royal Holloway, University of London and chair of FARSIG said: ‘FARSIG’s symposium this year explored the cash flow statement, including its relationship with sustainability reporting, critically examining how cash flows and ESG-related information could be integrated. 

‘The discussion addressed both the opportunities and challenges associated with this statement, highlighting how accountancy professionals could leverage it to enhance the relevance and reliability of corporate reporting practices. All this underlines how academics are well placed to work with the IASB on this issue.’

The symposium heard how IAS 7 Statement of cash flows does not consistently meet users’ needs. Users emphasise the importance of clarity, cohesiveness and comparability, particularly in relation to non-cash movements, working capital changes, exceptional items and net debt. Preparers, by contrast, often approach the statement of cash flows with a compliance mindset rather than seeing it as a valuable financial tool, leading to a divergence in expectations and outcomes.

The preparer’s compliance mindset is somewhat justified because symposium insight suggests that economic value is diminished for users - they tend not to use the cash flow statement as an information tool to manage their business. One reason being that the cash flow statement does not clearly highlight non-cash transactions users regard as economically equivalent to cash. Therefore, ACCA and the symposium welcome the IASB’s workplan to make the statement more economically valuable.

Sharon Machado, Head of Sustainable Business, Policy and Insights, ACCA, said: ‘FARSIG’s work this year raises interesting questions about the relationship between earnings and cash flows, and the impact of social and environmental factors on organisations’ current and future cash flows. Today such factors are rarely explained in cash flow statements or related disclosures. The reporting of sustainability-related financial disclosures may fill this gap through complementary information. The work that FARSIG undertakes explains why ACCA continue to value our relationship so highly.’

Read this year’s report here. 

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We are ACCA (the Association of Chartered Certified Accountants), the only truly global professional accountancy body. Since we were founded in 1904, we’ve been breaking down barriers to the accountancy profession. Today we proudly support a diverse community of over 257,900 members and 530,100 future members in 180 countries.
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