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IMPROVING CASH FLOW STATEMENT ON THE BASIS OF INTERNATIONAL
STANDARDS
Mavlyanova Dilobar Mahkamovna
Tashkent State University of Economics
Associate Professor of the Department of “Accounting”
Abstract:
This article describes how to prepare a cash flow statement using the direct method
based on International Financial Reporting Standards. In our country, only the direct method is
used in the preparation of cash flow statements, so the introduction of the direct method by us
will help to increase investor confidence in financial statements.
Keywords:
cash, cash equivalents, cash flow statement, direct method, operating activity,
investment activity, financial activity, financial statement, receipts from customers, payments to
suppliers for goods and services, payments to employees, profit tax payments.
Introduction.
In an increasingly globalized economy, transparent and comparable financial information has
become paramount for investors, lenders, and other stakeholders. The Statement of Cash
Flows—a core component of the financial statements—plays a decisive role in assessing an
entity’s liquidity, solvency, and overall financial adaptability. While many jurisdictions have
formally adopted the International Financial Reporting Standards (IFRS), practical alignment
with IAS 7: Statement of Cash Flows often lags behind, leading to inconsistencies in presentation,
classification, and disclosure.
This paper examines how the current cash flow reporting framework can be enhanced in line
with international standards. It begins by identifying the most common deviations from IAS 7
encountered in practice, including the misclassification of operating and financing activities,
inadequate reconciliation with profit and loss figures, and insufficient disclosure of non cash
transactions. Building on these observations, the study outlines a systematic set of
recommendations—spanning policy adjustments, internal control enhancements, and staff
training initiatives—to bring cash flow reporting into full compliance with IFRS requirements.
Ultimately, refining the Statement of Cash Flows according to global best practices is expected
to improve the reliability and comparability of financial information, thereby facilitating better
decision making for all stakeholders and strengthening the credibility of financial reporting in the
international arena.
Methods. In order to study the issues raised in this particular article, to explore in more detail the
role of staff motivation in development of small business and private enterprises, during our
research we used the methods of scientific abstraction, induction and deduction, methods
of observation, logical and structural analysis, grouping, mutual and comparative comparison.
Results
The need to prepare financial statements in accordance with international financial reporting
standards is established by the Resolution of the President of the Republic of Uzbekistan No.
PQ-4611 dated February 24, 2020 “On additional measures for the transition to international
financial reporting standards”. [2]
Accordingly, it is determined that the Cash Flow Statement must be prepared in accordance with
international standards.
In international practice, investors pay attention to the cash flow statement, which is one of the
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forms of financial reporting. The reason is that the amount of money inflows and outflows to the
entity arouses their interest.
The statement of cash flows, when used in conjunction with other financial statements, provides
users with information to assess the changes in the net assets of an entity, its financial structure
(liquidity and solvency), and its ability to influence the amount and timing of its cash flows to
adapt to changing opportunities and circumstances. Cash flow information is useful in assessing
the ability of an entity to generate cash and cash equivalents, and allows users to develop models
for estimating and comparing the present value of future cash flows from different entities. [10]
The statement of cash flows allows users to assess changes in the financial position of an entity
by providing them with information about how much cash has been received and how much has
been paid during the reporting period. The statement of cash flows classifies cash receipts and
payments into three main categories: operating, investing, and financing activities.
The amount of cash flows from operating activities is a key indicator of the extent to which an
entity has generated sufficient cash flows from its operating activities to service its debt,
maintain its ability to continue operating, pay dividends, and make new investments without
resorting to external sources of financing. Information about the individual components of cash
flows from operating activities in previous periods is useful, along with other information, in
forecasting future cash flows from operating activities.
Presentation of cash flows from operating activities [11] (not disclosed in the IFRS):
Entities are encouraged to report cash flows from operating activities using the direct method.
The direct method provides information that may be useful in estimating future cash flows that is
not reflected in the indirect method. When the indirect method is used, information about the
main categories of gross cash receipts and gross cash payments can be obtained in the following
ways:
- from the accounting records of the business entity; or
- by adjusting the sales revenue, cost of sales (interest and similar income and interest expense
and similar expenses for financial institutions) and other items reflected in the statement of
comprehensive income for:
- changes in inventories and operating receivables and payables during the period;
- other non-cash items; and
- other items that generate cash flows from investing or financing activities.
An entity discloses cash flows arising from operating activities using:
The direct method, which discloses the principal types of gross cash receipts and gross cash
payments;
The indirect method, which adjusts net income or loss for changes in current assets and liabilities,
uncertain transactions, and gains and losses arising from operating, investing, or financing
activities. [12]
IAS: According to IAS 7, information about an entity’s cash flows is useful to users of financial
statements in assessing the entity’s ability to generate cash and cash equivalents and its needs to
use those cash flows. The statement of cash flows should present cash flows during the period,
classified by operating, investing, and financing activities..
Consistent classification:
- Non-cash transactions are not included;
- Applying the correct or incorrect method IFRS 7 recommends using the correct method;
- Allows financial institutions to prepare reports on a NET basis.
The principle of calculating the cash flow statement for business entities is not followed.
Accordingly, in order to prepare the cash flow statement using the direct method, the following
indicators should be considered to determine the cash flow from operating activities:
1. Revenue from customers;
2. Payments to suppliers for goods and services;
3. Payments to employees;
4. Payments for income tax.
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When preparing cash flow statements, the statement of financial position and the profit and loss
statement, prepared in accordance with international standards, are primarily used.
Table 1.
Appendices from the statement of financial position of ABC Company
At the beginning
of the year
By the end of the
year
Assets:
Accounts receivable from customers
55 000
47 000
Inventories
110 000
144 000
Advances for goods and services
5 000
1 000
Accounts payable to suppliers
43 000
50 000
Employee compensation liabilities
9 000
10 000
Current income taxes payable
5 000
3 000
Source: *data compiled by the author
Table 2 .
Appendices from the profit and loss statement of ABC Company
Profit or Loss Section
Revenue
698 000
Cost of sales
457 000
Period expenses
116 000
Source: *data compiled by the author
Table 3.
Additional information for the year
Depreciation of fixed assets
37 000
Loss on sale of fixed assets
3 000
Labor compensation expenses
58 000
Current income tax
18 000
Source: *data compiled by the author
1.
To determine the above indicators, we will cite the formula for each indicator [13]:
2.
1. Revenue from customers.
Revenue ± decrease (increase) in accounts receivable decrease (increase) in advances received
from customers = Revenue from customers
3.
Revenue from customers = 698000 + 8000 = 706000
4.
In the above formula, revenue is taken from the income statement, while accounts
receivable and advances from customers are taken from the statement of financial position.
5.
3. Payments to suppliers for goods and services.
Payments to suppliers = cost of goods sold + period expenses - depreciation expense - loss on
sale of fixed assets - labor expense decrease (increase) in inventories decrease (increase) in
accounts payable
Payments
to
suppliers
=
6.
Payments to employees.
Employee benefits = salary expense ± decrease (increase) in salary liability
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7.
Payments to employees = 58000 – 3000 = 55000
8.
7. Payments for profit tax.
Income tax payments = current income tax expense ± decrease (increase) in current tax payable
Income tax payments = 18000 + 2000 = 20000
The above formulas determine the net cash flows from operating activities of the cash flow
statement. Cash flow presentation on a net basis:
Based on the above, we present the form of the cash flow statement prepared using the direct
method:
4 – table.
Cash flow statement – direct method
Cash Flow Statement
For the period from 1_____ to 1_____, 20__
Cash flow from operating activities
Revenue from sales
+ 706 000
Payments to suppliers
˗ (498 000)
Payments to employees
˗ (55 000)
Income tax payments
˗ (20 000)
Cash flow from operating activities
+ 133 000
Cash flow from investing activities
Acquisition of fixed assets
˗ (220 000)
Sale of fixed assets
+ 5 000
Purchase of securities
˗ (72 000)
Sale of securities
+ 103 000
Cash flow from investing activities
˗ (184 000)
Cash flow from financing activities
Proceeds from issuance of common shares
+ 150 000
Income from bank loans
+ 100 000
Repayment of bank loans
˗ (50 000)
Interest payments
˗ (23 000)
Dividend payments
˗ (94 000)
Cash flow from financing activities
+ 83 000
Net changes in cash position
+ 32 000
Cash at the beginning of the year
15 000
Cash at the end of the year
47 000
Source: *data compiled by the author
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Today, some errors are made in the preparation and practice of the cash flow statement. This
indicates that the reporting form is not perfectly formed. Therefore, it would be appropriate to
make some changes to the form of the “Cash Flow” report. That is, firstly, in the currently used
reporting form, the inflow and outflow of cash of the enterprise are reflected in the form of one
reporting period. However, it is appropriate to study, analyze and evaluate the various activities
of enterprises over several years. It would be more effective to reflect two reporting periods in
the form of the “Cash Flow” report, like the forms of the “Accounting Balance Sheet” (Form 1)
and the “Report on Financial Results” (Form 2). Secondly, in the currently used reporting form,
the movement of cash is classified into separate sections for each type of activity.
In conclusion, we can say that the preparation and presentation of a cash flow statement using
the direct method will further increase the ability of companies to formulate their financial
statements based on international standards, and will serve to eliminate the problems that arise in
the preparation of this form in practice and make it easier for investors to determine the state of
cash flows from this form.
Analyses.
1. Regulatory and Conceptual Framework
Uzbekistan’s transition to International Financial Reporting Standards (IFRS) was formalised by
Presidential Resolution PQ- 4611 of 24 February 2020. Among other mandates, it requires all
large entities to prepare their Statement of Cash Flows (SCF) in accordance with IAS 7. IAS 7
classifies cash movements into three categories—operating, investing, financing—and strongly
encourages the direct method for operating activities. Despite that preference, many Uzbek
entities continue to default to the indirect method, present only a single- year SCF, and
misclassify cash flows or include non- cash transactions, undermining comparability.
2. Why Investors Prioritise the SCF
Unlike the statement of profit or loss, the SCF is largely insulated from accounting policy
choices and non- cash estimates. It allows users to:
Gauge operating sustainability by measuring whether core activities consistently generate
positive
cash
flows.
Assess financial flexibility—the ability to service debt, pay dividends, and fund capital
expenditure
without
relying
on
external
finance.
Model enterprise value through discounted- cash- flow techniques that require a clean separation
of operating and non- operating streams.
3. Critical Appraisal of Current Practice
Table 1 summarises key weaknesses in current reporting practice, their consequences, and
IFRS- compliant remedies.
Weakness
Practical Consequence
IFRS- Compliant Remedy
Single- period presentation
Inhibits trend and ratio
analysis.
Adopt a two- period comparative
layout.
Indirect- method dominance Masks core drivers of cash,
complicates forecasting.
Implement the direct method from
ERP/ledger data.
Misclassification of cash
flows
Distorts operating cash
metrics and debt- coverage
ratios.
Use IAS 7 guidance hierarchy for
classification.
Inclusion of non- cash items Double- counts
effects
already reflected in the
balance sheet.
Disclose non- cash events in notes,
exclude from SCF totals.
Lack of policy disclosure
Limits comparability and
auditability.
Provide
explicit
notes
on
classification
judgements
and
reconciliation methods.
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4. Illustrative Case: ABC Company
Using the supplied data, ABC’s SCF (direct method) shows OFCF of UZS 133 000. Key
observations include stronger cash generation than earnings, negative investing cash flow
signalling growth, and positive financing inflows funded by share issuance and incremental debt.
5. Benefits of Direct- Method Adoption
Table 2 outlines the benefits of adopting the direct method.
Benefit
Rationale
Predictive value
Gross cash- in and cash- out data enhance
cash- flow modelling accuracy.
Credit analysis
Improves visibility into collections and
payments for banks and rating agencies.
Operational diagnostics
Allows real- time tracking of cash leakages
and corrective action.
Stakeholder confidence
Aligns disclosures with global practices,
improving access to capital markets.
6. Implementation Roadmap for Uzbek Entities
1. Data infrastructure – configure ERP systems to tag cash receipts and disbursements by
IAS- 7 codes.
2. Policy documentation – issue an accounting manual specifying SCF classification rules and
procedures.
3. Training and change management – conduct workshops for finance staff and auditors on
direct- method preparation.
4. Comparative rollout – pilot a dual- presentation SCF (direct + indirect) for one transition year.
5. Audit assurance – engage auditors early to validate data extraction logic and note disclosures.
7. Implications for Policy- Makers and Standard- Setters
Regulatory reinforcement – mandate direct- method SCF for public- interest entities.
Template revision – update the national 'Form 4' template to include prior- period columns.
Capacity- building – partner with professional bodies to deliver IFRS- focused CPD courses.
Discussion.
1.
Alignment with IAS 7 is essential for competitiveness. Presidential Decree PQ- 4611
obliges Uzbek companies to prepare an IAS 7- compliant Statement of Cash Flows (SCF). Firms
that adopt the standard promptly gain transparency and appeal to global investors.
2.
The direct method delivers maximum analytical insight. Disclosing gross cash inflows
and outflows sharpens forecasts, highlights operational bottlenecks, and narrows the gap between
management accounts and external reporting.
3.
A two- period comparative SCF is vital for trend analysis. Like the balance sheet and
income statement, the SCF should present two consecutive periods so users can track changes in
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liquidity, profitability, and financial flexibility.
4.
Common errors—indirect presentation, misclassification, inclusion of non- cash items—
distort cash metrics. Correcting these flaws enhances the reliability of debt- coverage ratios, cash
multipliers, and free- cash- flow indicators.
5.
Economic payoff: the direct method speeds up capital turnover and lowers the cost of
external finance. Clearer cash- flow data boosts lender and investor confidence, easing access to
funding on better terms.
6.
Robust digital infrastructure and corporate policies are critical to success. Tagging
transactions with IAS 7 codes in ERP systems, issuing detailed classification guidelines, and
training staff reduce errors and streamline audits.
7.
Regulators should strengthen methodological guidance. Updating the national “Form 4”
SCF template to mirror IAS 7—including a mandatory comparative column—will accelerate
uniform practice across entities.
8.
Bottom line: adopting a direct, comparative SCF is not just compliance—it is a strategic
advantage. It improves decision- making quality, enhances the investment profile of Uzbek
enterprises, and supports their integration into global capital markets.
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IAS
9.7.
Cash
Flow
Statement.
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%B2-%D0%8E%D0%A3%D0%9C-%D0%9C%D2%B2%D0%A5%D0%A1-%202019-2020-
14.02.2020.pdf
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