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Statement of Cash Flows: Time for change

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As contained in the Week Four electronic reserve readings article readings, this article, Broome, O. W. (2004, March/April). Statement of cash flows: Time for change! Financial Analysts Journal, 60(2), 16. , describes the current SFAS No. 95 requirements for the statement of cash flows, cites recent cases of abuse and disinformation involving the statement, and makes significant recommendations for improving the statement. Based on the comments in the article do you think the three sections of the statement of cash flows provide enough information for the reader? Of the three which provides the most information or is this an 'it depends' answer?

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No, the cash flow statement does not contain enough information. Broome suggests two main improvements to the cash flow statement. First, that the operating cash flows are reported using the direct method and that the reconciliation between net income and operating cash flows is made more understandable by separating them into four basic categories: inflows not yet reported in earnings, revenues not yet collected, outflows not yet reported in earnings and expenses not yet paid for. I believe these would greatly enhance the usefulness of the cash flow report.

Broome does not take issues with the three categories of operating, investing or financing, although he cites classification abuses. For ...

Solution Summary

Your tutorial is 433 words and agrees with Dr. O. Whitfield Broome that the cash flow statement could be improved. One section is cited as more important with reasons given.

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