ACC 557 Week 9 DQ1
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This 2 page Study Guide was uploaded by an elite notetaker on Wednesday November 11, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 25 views.
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Date Created: 11/11/15
ACC 557 Week 9 DQ1 "Cash Flow Reporting" Please respond to the following: Given the complexities related to preparing and interpreting the statement of cash flow, evaluate the current requirement under GAAP and IFRS, indicating improvements that you would make to each method’s requirement to better serve the users of the information. Provide a rationale for your changes. Analyze the impact of erroneous classifications in the Operating Activities section of the statement of cash flows, detailing how the distortion can impact the decisions made by financial statement users. Suggest how these errors may be minimized There are definitely some very distinct differences in the requirements of the GAAP and IFRS preparation and interpretation of the statement of cash flow. Under the IFRS the statement of cash flow is “required for most entities” while the GAAP states that “statement of cash flow is required for all entities” (Epstein, 2010). By the IFRS not requiring a statement of cash flow for all entities it can be difficult to set a common standard for all companies. As an improvement to the IFRS’s requirement I would recommend requiring that a statement of cash flow be completed for ALL entities without exception. This would help to establish a standard for all entities and would minimize the variations of the entities that have a statement of cash flow report. Another major difference between the manner in which IFRS requires you report on a statement of cash flow and the manner in which GAAP reports on a statement of cash flow is that under IFRS requirements, “overdrafts cannot be included in cash and have to be shown as a financing source of cash while the GAAP states that “ overdrafts can be included in cash under defined conditions” (Epstein, 2010). As far as the way that the GAAP require you report overdrafts I can’t see a better way to report this than the method that is already in place, but as for the IFRS method it would more helpful and easier to understand the company’s financial position if any overdrafts the company incurs is shown in the cash accounts as that is most likely where the monies for the overdrafts will have to be drawn from. The IFRS current method of reporting overdrafts requires too much back and forth and looking up to determine what accounts the monies are being either debited from or credited to. Improperly recording classifications on any statement but especially the statement of cash flows can have detrimental effects for those individuals who are making decisions based on the figures reported in a company’s statement of cash flows. “The purpose of the cash flow statement is to report how an organization generated and used its cash,” if a company is incorrectly reporting how monies were generated or used in the business then the statement of cash flows report is not a true window into the company’s finances (www.wiley.com). In order to give the users of the statement of cash flows an accurate idea of how a company is fairing financially it is imperative that the statement of cash flows be accurate. For example, if figures were inaccurately documented on the cash flows statement it could give an investor or business owner the impression that the company is financially stable enough to support an expansion of the business, purchase new equipment for the company and so forth when the truth could actually be that the company is facing some financial instabilities. Epstein, B. (2010). Statement of Cash Flow IFRS versus GAAP. Retrieved from http://www.ifrsaccounting.com/ifrscashflow.html.
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