The Commission considers that the statement of cash flows is one of the core financial statements in the financial report of every issuer. It helps users of the financial statements assess the entity's ability to generate cash flows to meet its obligations when they fall due and its other cash operating, investing and financing needs. The statement of cash flows helps users assess factors such as the entity's liquidity, financial flexibility, profitability and risk.

In Cycle 6 matters were raised with three issuers in relation to their statement of cash flows.

One issuer included a bonus share issue in the Statement of Cash Flows as financing activities. As this is a non-cash transaction it should not have been included in the Statement of Cash Flows.

FRS-10: Statement of Cash Flows (paragraph 5.26) requires the statement of cash flow to "reflect only transactions wholly in cash and the cash element only of transactions that are partly in cash". This is explained further in FRS-10, paragraph 5.29: "Many investing and financing activities do not result in cash flows although they may affect the capital and asset structure of the entity…where such transactions do not involve cash flows, they are to be excluded from the statement of cash flows."

FRS-10 (paragraph 5.27) requires non-cash investing and financing transactions which affect assets and liabilities that have been recognised, to be disclosed in a note to the financial report. The note should be referenced to the appropriate items in the financial statements.

One issuer's disclosures about its policies on netting of cash flows were inadequate. The issuer disclosed in the Statement of Accounting Policies that certain cash flows had been provided net and explained the nature of the netting. However, the Statement of Cash Flows, specifically the operating cash flows, included additional netting that was not covered by the accounting policies.

FRS-10 (paragraph 5.33) states that "when a cash flow in the statement of cash flows combines receipts and payments to present a net cash flow, a note to the financial statement is required identifying such a cash flow". The entity is also required to give reasons why those receipts and payments have been netted off.

FRS-10 (paragraph 5.35) reiterates that "where the statement of cash flows includes one or more net cash flows, disclosure by note is to identify those cash flows as net cash flows and is to provide the reasons for presenting those cash flows as net cash flows".

The Commission wrote to one issuer enquiring about its disclosure of certain cash flows as operating cash flows rather than financing cash flows.

A definition of operating activities and financing activities is provided in paragraphs 4.10 and 4.15 of FRS-10. Issuers must assess cash flows with reference to these definitions when classifying cash flows into the three groups as required by paragraph 5.3 of FRS-10. "The classification…provides information about the entity's cash performance and provides possible comparisons with other time periods, with other entities and with other industries" (FRS-10 (paragraph 5.5)).

Two issuers failed to provide the following related party disclosures as required by SSAP 22: Related Party Disclosures:

One of the above issuers also failed to include director related interests in the related party note but did disclose them elsewhere in the annual report.

As New Zealand entities are moving to adopt NZ IFRS, the Commission draws issuers' attention to the following discussion under NZ IFRS, in the Standard NZ IAS 24 Related Party Disclosures (paragraphs 5-8) which explains the importance of related party disclosures:

"Related party relationships are a normal feature of commerce and business…A related party relationship could have an effect on the profit or loss and financial position of an entity...even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the entity with other parties…For these reasons, knowledge of related party transactions, outstanding balances and relationships may affect assessments of an entity's operations by users of financial statements, including assessments of the risks and opportunities facing the entity."

One issuer did not apply a consistent basis for presenting revenue for a subsidiary in its financial statements and prospectus where the subsidiary's revenue was reported gross in the issuer's financial statements and the same subsidiary's revenue was reported net in the issuer's prospectus.

On enquiry, the issuer clarified that the subsidiary's revenue shown in the issuer's prospectus as net revenue is incorrect and the gross revenue should have been presented. The issuer has undertaken to correct this in its next prospectus.