IFRS – IAS 7: Statement of cash flows

The International Accounting Standards Committee (IASC) released International Accounting Standard 7 (IAS 7) to address the topic of the Statement of Cash Flows.

The way in which the statement of cash flows is presented is important in that it shows the liquidity of a company and measures its abilities pay its bills and collect on sales. As accounting nowadays is performed on the accrual method rather than the cash method, this statement is necessary to show investors how much of the earnings are actually coming in the door – as a company could generate a large balance of sales through credit and then never collect on it.

IAS are principles based standards, rather than strict rules based standards that govern international accounting. IAS standards differ from IFRS standards in that they were introduced prior to 2001, whereas IFRS were produced after this date by the IASB, or the International Accounting Standards Board. When determining the hierarchy of these, the IAS is considered to be the building blocks in which the newer and more relevant IFRS are founded and therefore IFRS is more authoritative when these conflict.

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