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IMPROVEMENT CASH FLOW STATEMENT BASED ON
INTERNATIONAL STANDARDS
Professor, DSc, Turaev Abdurakhim Nortojiyevich
Professor of Department of Accounting, Tashkent State University of
Economics, a.turaev@tsue.uz
Saatova Nargiza Kayum qizi
master of degree Tashkent State University of Economics
：
s.nargiza0699 @gmail.com
Annotation: This article describes how toprepare a cashflow statement using
the direct method based on International Financial Reporting Standards. Jn our
country, only the direct method is used in the preparation of cashflow statements, so
the introduction of the direct method by us will help to increase investor confidence
infinancial 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 taxpayments.
Introduction.
The main attempt to prepare financial statements for busines s
entities is the statement of financial position. An entity shall apply the same
accounting policies in all periods covered by its initial financial statements in IFRS.
The business entity should not apply other previously applicable IFRSs. A business
entity may apply a new IFRS that is not yet in force when the early application of this
IFRS is permitted.
Except as otherwise provided, the entity shall include in its initial statement
of financial position under IFRS:
(a) recognize all assets and liabilities that are required to be recognized
under IFRSs;
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(b) IFRSs do not recognize assets and liabilities that are not recognized;
(c) items that are recognized as a single type of asset, liability or equity under
the previou s IFRS but recognized as an asset, liability or other type of equity under
IFRSs should not be reclassified; and
(g) apply IFRSs in the valuation of all recognized assets and liabilities [1].
The accounting policies used by an entity in its initial statement of financial
position under IFRS may differ from the accounting policies used by it on the same
date as in the previous IFRS. The resulting adjustments are the result of operations
and events that occur before the date of transition to IFRS. Therefore, an entity shall
recognize these adjustments in retained earnings (or, if appropriate, in another
category of equity) at the date of transition to IFRSs.
Accordingly, it allows you to prepare a cash flow statement after you have
prepared the financial position and profit and loss statements.
The need to prepare financial statements in accordance with International
Financial Reporting Standards Presidential Decree No. PP-4611 of February 24, 2020
determined on the basis of the decision [2].
Based on this, it is determined that the cash flow statement should be prepared
in accordance with international standards.
In international practice, investment focuses on the statement of cash flows,
which is one of the forms of financial reporting. This is because of the fact that the
more money a subject receives and receives, the more interest they will have.
Literature review. Economists from both foreign and CIS countries have
studied the issues of improving the procedure for compiling and submitting cash flow
statements. Among them are A.Arens, B.Nidlz, V.Savitskaya, M.Bocharev,
K.Lobbek, P.Kamyshanov, A.Ionova and others. Scientists of the republic of
Uzbekistan have also achieved some results in the development and implementation
of the procedure for compiling and submitting cash flow reports. In this regard, the
research of leading economic scientists of the republic of Uzbekistan I.T
Abdukarimov, M.K Pardaev, A.S Sativoldiev, A.V Vahobov, M.M Tolakhojaeva,
A.K Ibragimov, A.H Pardaev, O.M Kuljanov and others reported. However, these
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procedures do not disclose the procedure for preparing the statement of cash flows
using the direct method in accordance with International Financial Reporting
Standards.
Research methodology. This paper provides analysis, grouping, analysis,
synthesis, induction, deduction, comparative comparison, data collection, and
economic research of selected research literature in order to reveal the procedure for
compiling a cash flow statement using the direct method based on International
Financial Reporting Standards widely used as mathematics.
Analysis and discussion of results (main part). When used in conjunction with
other financial statements, a cash flow statement allows users to assess changes in
the entity's net assets, their financial structure (liquidity and solvency) and their ability
to influence the amount and timing of its cash flows to adapt to changing opportunities
and conditions. provides. Cash flow information is useful in assessing an entity's
ability to generate cash and cash equivalents, and allows users to develop models for
estimating and comparing the present (present) value of future cash flows for different
entities [3].
The cash flow statement allows users to assess changes in the entity's financial
position, providing them with information about how much cash was received and
how much was spent during the reporting period. The cash flow statement divides
cash receipts and payments into three main categories: operating, investing, and
financing activities.
The amount of cash flows arising from operating activities - the business
entity, without resorting to external sources of financing, to repay debts arising from
its operating activities, to maintain its ability to conduct operations, to pay dividends
and new investments is a key indicator that reflects the extent to which it has generated
enough cash flows to do so. Information about the individual components of cash
flows arising in the pre-operating period is useful, among other things, in forecasting
future cash flows from operating activities.
Display of cash flows from operating activities [4] (not disclosed in IFRS):
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19. It is recommended that business entities report cash flows from operating
activities using the direct method. The use of the indirect method provides
information that may be useful in estimating future cash flows and that is not reflected
in the use of the indirect method. When the direct method is used, information on
gross cash receipts and the main categories of gross cash payments can be obtained
in the following ways:
(a) the business entity's accounting data; or
(b) by adjusting the sales proceeds, cost of sales (interest and similar income
for financial institutions and interest expenses and similar expenses) and other items
reported in the statement of comprehensive income to:
(i) changes in inventories and operating receivables and payables during the
period;
(ii) other non-cash items; and
(iii) other items that generate cash flows from investing or financing
activities.
15. An entity discloses cash flows from operating activities using:
15.1. A direct method of disclosing the main types of gross receipts and gross
payments;
15.2. Indirect method. Under this method, net income or loss is adjusted for
changes in current assets and liabilities, unreliable transactions, as well as income and
losses from operating or investing activities.
Applies to all major cases [5].
IFRS: According to IAS 7, information about an entity's cash flows is useful
to users of financial statements as a basis for assessing an entity's ability to generate
cash and cash equivalents and the need to use those cash flows. The cash flow
statement should show cash flows for the period, classified by operating, investing
and financing activities.
Consistent categorization:
Non-cash transactions are not included;
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Use of the straight or curved method IFRS 7 recommend s the use of the
straight method; Allows financial institutions to prepare reports on the basis of
NETTO.
Compiling a cash flow statement for business entities does not follow the
accrual basis. Therefore, in order to compile a cash flow statement directly, the
following indicators should be considered to determine the cash flows from operating
activities:
1.
Revenue from customers;
2.
Payments to suppliers for goods and services;
3.
Payments to employees;
4.
Income tax payments.
Cash flow statements are primarily based on the statement of financial
position and profit or loss statement prepared in accordance with international
standards.
Table 1. Applications from ABC's Statement of Financial Position
Source: * data compiled by the authors
Table 2. Applications from ABC Profit and Loss Statement
Source: * data compiled by the authors
Table 3. Additional information for the year
Source: * data compiled by the authors
To determine the above indicators, we cite the formula of each indicator [6]:
1.
Receipts from customers.
Decrease (increase) of accounts receivable + Decrease (increase) of
advances received from customers = Receipts from customers
Receipts from customers = 698000 + 8000 = 706000
In the above formula, revenue is derived from the profit and loss statement,
and the receivable and advances from customers are obtained through the statement
of financial position.
2.
Payments to suppliers for goods and services.
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Payments to suppliers = 457000 + 116000 - 37000 - 3000 - 58000 ++ 34000
- 4 000 -7 000 = 498000
3.
Employee payments.
I Employee benefits = wage costs ± decrease (increase) in wage liabilitie s
Employee benefits = 58000 - 3000 = 55000
4. Income tax payments.
I Income tax payments = current income tax expense ± decrease (increase) of
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. Representation of cash flows on a pure basis:
22. Cash flows from the following operating, investing or financing activities
may be reported on a net basis:
A) cash receipts and payments made on behalf of customers, if the cash
flows reflect the activities of the customer, not the business entity; and
B) cash receipts and payments for fast-moving, bulky and short-lived items.
Examples of cash receipts and payments referred to in paragraph 22 (b) are:
(a) principal amounts due to credit card holders;
(b) the purchase and sale of investments; and
(c) other short-term loans, such as loans with a maturity of three months or
less [7].
It is important to disclose cash flows from investing activities because such
cash flows reflect how much is spent on resource s to generate future income and cash
flows. Only expenses that result in the recognition of an asset in the statement of
financial position can be classified as an investment activity. To determine the cash
flows of investment activities:
Purchase and sale of fixed assets and other long-term assets; The focus is on
buying and selling financial investments.
It is important to highlight cash flows arising from financing activities because
it is useful for the parties financing the entity to know in advance the requirement s
for future cash flows. Cash flows from financing activities include:
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Cash proceeds from the issuance of shares or other equity instruments;
Payments to property owners for the purchase or disposal of shares in an
entity; Debt settlement;
Interest payments; Dividend payments.
An entity shall disclose in the report the main categories of gross cash receipts
and gross cash flows arising from investing and financing activities. Cash flows from
operating, investing or financing activities may be reported on a net basis:
(a) cash receipts and payments made on behalf of customers, if the cash
flows reflect the activities of the customer, not the entity; and
(b) cash receipts and payments for fast-moving, bulky and short-lived items.
Cash flows from the following activities of a financial institution can be
reported on a net basis [8]:
(a) receipts and payments for the receipt and return of deposits with a fixed
maturity date;
(b) placement and withdrawal of deposits in other financial institutions; and
(c) the repayment of loans and credits to customers and the repayment of
loans and credits.
The sum of the operating, investment and financial activities of a cash flow
statement results in a net increase or decrease in cash and cash equivalents. Equity
investments are not cash equivalents, except when they are, in fact, cash
equivalents, such as in the case of preferred shares purchased shortly before maturity
and with a clear maturity (9-B).
The difference between cash and cash equivalents at the beginning and end of
the period allows you to determine the effect of changes in cash flows on exchange
rates. Cash flows denominated in foreign currencies are presented in accordance with
IFRS 21 Impact of Changes in Exchange Rates. This allows you to use an exchange
rate that is approximately equal to the actual exchange rate. For example, the weighted
average exchange rate for a given period may be used to reflect transactions in a
foreign currency or to convert a foreign subsidiary's cash flows from one currency to
another. However, in accordance with IFRS 21, a foreign subsidiary is not permitted
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to use the exchange rate at the end of the reporting period when converting cash flows
into a functional currency.
Based on the above, the following is a direct cash flow statement:
Table 4. Cash flow statement, direct method
Source: * data compiled by the authors
Conclusion.
IFRS is used in more than 166 countries. In Uzbekistan, the
following organizations are required to keep records and report on the basis of IFRS:
More than 2,000 joint-stock companies, commercial banks, insurance
companies and large taxpayers;
step-by-step - state-owned enterprises and state-owned enterprises.
These organizations must have at least three IFRS-certified staff in the
accounting staff [10].
The principle of accrual is established in the preparation of financial
statements, but the principle of accrual is not required for the statement of cash flows.
Accordingly, it is advisable to prepare a cash flow statement using the direct method,
using extensive international experience. As a result, investors will have more
confidence and interest in financial statements.
In determining the operating, investing and financing activities of a cash flow
statement, it is appropriate that they consist of:
1.
Operating activities:
Sale of products, goods and services; Payments to suppliers of goods and
services;
Royalties (patents, copyright fees, etc.), various awards, interest income,
commissions and other mcome;
Payments to employees of the enterprise, operating expenses; Decrease in
inventories;
Increase in inventories;
Receipt of money on trade and brokerage transactions; Interest paid;
Increase in current liabilities, including income tax not included m
investment and financial activities;
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Decrease in current liabilities, including income tax not included in
investment and financial activities;
Free expenses:
a)
depreciation of fixed assets and intangible assets, reduction of natural
resources
b)
depreciation of debt securities; Free transactions:
a) amortization of interest on debt securities
2.
Investment activity:
Proceeds from the sale of land, buildings, equipment, intangible and other
long-term assets;
Payments for the purchase of land, buildings, equipment, intangible assets
(eg patents) and other long-term assets, payments for capital and development work,
as well as payments for land, buildings and equipment created by the enterprise
without the involvement of contractors;
Proceeds from the disposal I sale of shares or other debt obligations of other
entities (excluding payments for liabilities that are considered cash equivalents or held
for sale);
Investments in shares or debt obligations of other enterprises. Contributions
to equity (other than payments on cash equivalents or held for sale);
Income from repayment of loans to other enterprises and repayment of debts
(excluding interest income from operating activities);
Payments and loans to other companies.
3.
Financial activity:
Proceeds from the issue of shares; Payments for privately purchased shares;
Debt proceeds (issued bills, bonds, letters of credit and other short-term and
long-term loans and borrowings);
Repayment ofloans and borrowings (excluding interest on operating loans);
Payment of dividends to shareholders and other types of capital distribution.
Proceeds from the issuance of shares are payments on financial lease obligations [11].
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The concept of "cash" has been redefined by economists: "Cash is a type of
money that can be used to repay liabilities immediately. Current account balances in
financial institutions, cash notes, coins, currencies, cash and cash equivalents." term
deposits and cash receipts issued by financial institutions.
Today, some errors are made in the preparation and practice of cash flow
statements. This indicates that the report form is not perfectly formed. Therefore, it
would be appropriate to make some changes to the Cash Flow Statement. That is,
first, in the current reporting format, the entity's cash inflows and outflows are
presented in the same reporting period. However, it is advisable to study, analyze and
evaluate the various activities of enterprises over several years. It would also be useful
to reflect two reporting periods in the form of a statement of cash flows, such as the
balance sheet (Figure 1) and the statement of financial performance (Figure 2).
Second, in the form of this current report, cash flows are classified into separate
subdivisions for each type of activity.
In conclusion, the preparation and submission of a direct cash flow statement
will increase the ability of companies to prepare their financial statements in
accordance with international standards, and in practice will help to overcome the
difficulties in compiling this form and determine the cash flow situation for investors.
serves to bring.
SOURCES AND REFERENCES:
1.
Educational-methodical complex on the subject "International Financial
Reporting Standards" Developers:
Norbekov D.E. -TMI, Associate Professor of "Accounting", i.f.n. Ochilov I.K. -TMI,
Associate Professor of "Accounting", i.f.n.
2.
Resolution of the President of the Republic of Uzbekistan dated February 24,
2020 No. PP-4611 "On additional measures for the transition to International
Financial Reporting Standards". https://lex.uz/docs/-4746047
3.
International Accounting Standard 7 Cash flow statement
4.
https ://fayllar.org/ ozbekiston-respublikasi-v4.html ?page=22
5.
National Accounting Standard 9
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6.
https://uz.wikisko .ru/wiki/Cash_flow_statement
7.
International Accounting Standard: IAS 7
8.
https://tfi.uz/docs/oub/edition/%D0%98.%D0%9E%Dl
%87%DO%B8%DO%BB%DO%BE%DO
%B2-%D0%8E % DO% A3% DO% 9C-% DO% 9C% D2% B2% DO% A5% DO%
Al-% 202019- 2020-14.02.2020.pdf
9.
https://ifrs.academy/uz#
10.
IFRS Academy
11.
https://tfi.uz/storage/doc-pages/78/original/
cc5caf8c621b3f9637accfl
74e20486dc3dablc6.pdf
