Consistency of Presentation and Disclosure of Cash Flow Statements

The statement of cash flows, mandated by International Accounting Standard 7 (IAS 7), is a critical financial report that provides insights into an entity’s liquidity, solvency, and overall financial health. However, inconsistencies in its presentation and disclosure hinder comparability across entities, affecting stakeholders’ decision-making. This study aims to examine the compliance and consistency of IAS 7 reporting among a random sample of 20 JSE Top 40 Index companies in South Africa, with a financial year end of 2023, and with a minimum of at least two companies per industry. Using a disclosure index study and thematic content analysis, the research evaluates, qualitatively and quantitatively, the adherence to IAS 7 across various industries, as defined on the JSE. An overview of the findings indicates that the entities reviewed achieved an appropriate compliance level with IAS 7, with 65.4% of sampled entities fully complying with IAS 7. In comparison, 1.1% failed to meet disclosure requirements, particularly in financing liabilities. Additionally, 65.2% of disclosures were rated “exemplary”, though some entities exhibited inadequate transparency due to reliance on the indirect method and inconsistent classification of interest and dividend cash flows. The flexibility within IAS 7 allows for varied interpretations, leading to fragmented reporting practices and reduced comparability. Addressing these inconsistencies is essential to enhancing the decision usefulness of financial statements for investors, regulators, and other stakeholders. This study underscores the need for greater standardisation in cash flow reporting to improve transparency and facilitate more effective financial analysis.