More cash flow statement disclosures – Changes to IAS 7

On 29 January 2016, the International Accounting Standards Board (IASB) issued amendments to IAS 7 Statement of Cash Flows that require additional disclosures about changes in an entity’s financing liabilities arising from both cash flow and non-cash flow items.

The changes are a result of investor requests for entities to provide information to improve their understanding of changes in the entity’s net debt, and management of financing activities. The changes are part of the IASB’s Disclosure Initiative project to improve disclosures in financial statements.

When do the changes apply?

The changes, which can be early adopted once approved by the Australian Accounting Standards Board (AASB), are mandatory for annual periods beginning on or after 1 January 2017. Comparatives are not required in the first year of adoption.

Which liabilities do the new disclosures apply to?

The new disclosures required by IAS 7, paragraphs 44A to 44E, apply to all liabilities whose cash flow movements are disclosed as part of financing activities in the cash flow statement.

These disclosures also apply to any changes in financial assets (e.g. those used to hedge liabilities arising from financing activities) if cash flows from these financial assets will be included in cash flows from financing activities.

Additional disclosures required

To meet the disclosure objective of these changes, entities will need to disclose the following changes in liabilities arising from financing activities:

• Changes from financing cash flows
• Changes from obtaining or losing control of subsidiaries or other businesses
• Effect of changes in foreign exchange rates
• Changes in fair values, etc.

What should disclosures look like?

There is no specific requirement to make these additional disclosures appear in a particular way (e.g. tabular format).

Paragraph 44D notes that one way to show these disclosures might be by including a reconciliation between opening and closing balances in the statement of financial position for liabilities that result in financing cash flows. Where this format is used, users should be able to tie back items in the reconciliation to the statements of financial position and cash flows. A good way to do this is by cross-reference.

Example C (reproduced below) has been inserted into IAS 7 to provide an illustrative example of the disclosure. The example does not illustrate the prior year comparatives, which must be included from the second year of adoption onwards.

	1 January 2017	Cash flows	Non-cash changes			31 December 2017
			Acquisition	Foreign exchange movements	Fair value changes
	$	$	$	$	$	$
Long-term borrowings	22,000	(1,000)	_	_	_	21,000
Short-term borrowings	10,000	(500)	_	200	_	9,700
Lease liabilities	4,000	(800)	300	_	_	3,500
Assets held to hedge  long-term borrowings	(675)	150	_	_	(25)	(500)
Total	35,325	(2,150)	300	200	(25)	33,650

Because of the requirement in paragraph 44D for users to be able to link items disclosed in the reconciliation with movements in the cash flow statement, we note that this example may be too simplistic for some entities, particularly where:

• Each of the above categories contain repayments of borrowings and new borrowings raised (i.e. would be shown as separate categories in financing activities), and
• Interest payments on borrowings and lease liabilities are classified as operating cash flows, and therefore included as operating activity outflows.

In these cases, the reconciliation may need to be expanded, for example, by including separate columns for:

• Cash inflows and outflows, which reconcile to financing activity cash inflows and outflows in the cash flow statement, and
• Interest payments included as operating cash flows.