Balance sheet and profit and loss account, together with the disclosure, are the documents traditionally composing a financial statement in the majority of legislations; on the contrary, the cash flow statement as a mandatory element of financial reporting is a relatively new legislative introduction.
In the Italian discipline, for example, the introduction of the obligation of cash flow statement in the financial statements has followed a very recent evolution compared to other countries. Such evolution has been completed only with the recent financial statement reform deriving from Directive 2013/34/EU, implemented in our system through Legislative Decree n. 139 of 18 August 2015 which definitely brings our discipline closer to IAS/IFRS adopters thanks to the changes made to article 2423 of the Civil Code (introduction of cash flow statement as mandatory document) and to the introduction of article 2425-ter (which defines the function of the cash flow statement).
This last article states that “The cash flow statement contains, for the current and the preceding year, the amount and composition of cash and cash equivalents, at the beginning and at the end of the year, and financial flows of the year deriving from operating activities, investment activities and financing activities, with specific reference to the operations with shareholders”.
The Civil Code has established no minimum contents for the cash flow statement but only states its objectives, pointing out the necessity to present the aggregates of cash and cash equivalents and financial flows for both current and previous year, in order to allow data comparison.
In addition, the Code does not refer to a specific format or scheme to be used, therefore leaving free option to the companies to choose the model which best fits the Company’s complexity, or instead highlights the most relevant information they want to present, also taking into account the degree of completeness of the information to be disclosed and the reporting system available.
Article 2425-ter clearly indicates that financial flows must be presented in the cash flow statement into 3 main aggregates: operating activity, investing activity and financial activity, separately evidencing the transactions with shareholders.
Literally analyzing the article, one can understand that the distinction of the different operations to be presented in the statement faithfully takes after the structure and terminology used by IAS 7; the only (minimal) difference arising from the comparison between international accounting standards and domestic ones (OIC 10, introduced after the revision and update process of domestic accounting standards occurred in 2014) refers to the utilization of slightly different terms, which classifies the first aggregate of the cash flow statement as “operating activity” according to the IAS and as “revenue generating” according to OIC.
The Italian legislation
By endorsing the European Directive, the Italian legislator has confirmed the terminology framework of the international accounting standards set by adopting the same formula used by IAS 7, this confirming the general intention of our domestic accounting discipline to follow the convergence process with the international accounting standards.
The most innovative provision introduced by article 2425-ter refers to the necessity of disclosing the composition, in addition to the amount, of cash and cash equivalent at the beginning and at the end of the year. This detail, highly relevant for a company’s financial analysis, is currently not displayed in the cash flow statement scheme used by both domestic and international accounting standards, which in fact only refer to the amount of cash and cash equivalents with no specific reference to its composition.
By completing the information on the basis of what required by article 2425-ter through a scheme containing details on the cash and cash equivalents amount, the financial statements can offer a more exhaustive understanding of the real cash position of the Company, which seems particularly useful for financial analysts who need to evaluate its financial position and trends. I therefore believe that the OIC will have to intervene and modify OIC 10 in order to comply with such new legislative requirements.Watch movie online The Transporter Refueled (2015)
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