Cash Flow Statement and Inventory Financing
An interesting development from the SEC that is applicable to the cash flow statement and inventory chapters.
The SEC is cracking down on companies that are "Presenting cash flows between the company and/or its consolidating subsidiaries as an investing cash outflow and an operating cash inflow when there has not been a cash inflow to the company on a consolidated basis from the sale of inventory..."
From the SEC:
In January 2005, the staff of the Division of Corporation Finance sent
letters to certain registrants related to their presentation of cash
receipts from inventory sales in their consolidated statements of cash
flows. In order to affect wide-spread awareness of this issue and to
refocus registrants on the proper presentation in their consolidated
statements of cash flows, we are providing publicly an example of
comments that registrants should consider as they prepare future
Commission filings.
The importance of appropriate classification and presentation of items
in the consolidated statement of cash flows cannot be overstated. The
statement of cash flows is one of the primary statements required with a
full set of financial statements. It is relied upon by analysts and
investors as much, if not more in some instances, as the statement of
net income. As such, we expect registrants to give significant attention
to the preparation of their consolidated statement of cash flows in
order to ensure it provides an accurate presentation of their actual
cash receipts and cash payments based on activity (operating, investing
and financing), which in turn assists the reader in determining the
registrant's ability to meet its obligations, pay dividends, generate
cash flows sufficient to grow its business, etc. While the staff
believes a statement of cash flows using the direct method provides
investors with more useful information than the short-cut indirect
method, we recognize that most companies use the indirect method.
Therefore, we encourage companies to put more time and effort into
ensuring that the statement of cash flows, and related disclosure in the
financial statement footnotes and in MD&A, is meaningful and useful to
users of the financial statements.
-Curt Norton
The SEC is cracking down on companies that are "Presenting cash flows between the company and/or its consolidating subsidiaries as an investing cash outflow and an operating cash inflow when there has not been a cash inflow to the company on a consolidated basis from the sale of inventory..."
From the SEC:
In January 2005, the staff of the Division of Corporation Finance sent
letters to certain registrants related to their presentation of cash
receipts from inventory sales in their consolidated statements of cash
flows. In order to affect wide-spread awareness of this issue and to
refocus registrants on the proper presentation in their consolidated
statements of cash flows, we are providing publicly an example of
comments that registrants should consider as they prepare future
Commission filings.
The importance of appropriate classification and presentation of items
in the consolidated statement of cash flows cannot be overstated. The
statement of cash flows is one of the primary statements required with a
full set of financial statements. It is relied upon by analysts and
investors as much, if not more in some instances, as the statement of
net income. As such, we expect registrants to give significant attention
to the preparation of their consolidated statement of cash flows in
order to ensure it provides an accurate presentation of their actual
cash receipts and cash payments based on activity (operating, investing
and financing), which in turn assists the reader in determining the
registrant's ability to meet its obligations, pay dividends, generate
cash flows sufficient to grow its business, etc. While the staff
believes a statement of cash flows using the direct method provides
investors with more useful information than the short-cut indirect
method, we recognize that most companies use the indirect method.
Therefore, we encourage companies to put more time and effort into
ensuring that the statement of cash flows, and related disclosure in the
financial statement footnotes and in MD&A, is meaningful and useful to
users of the financial statements.
-Curt Norton
posted by Don Pagach at 9:57 AM
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