IPSAS2 CASH FLOW STATEMENT

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IPSAS2 CASH FLOW STATEMENT Asso Prof Dr Ruhaya Atan PJK. CA (M) Accounting Research Institute, Faculty of Accountancy, UiTM [email protected]

INTRODUCTION The cash flow statement identifies (a) the sources of cash inflows, (b) the items on which cash was expended during the reporting period, and (c) the cash balance as at the reporting date.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Objective of IPSAS2 • is to provide information about the historical changes in cash and cash equivalents of an entity by means of a cash flow statement that classifies cash flows during the period from operating, investing, and financing activities.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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SCOPE An entity that prepares and presents financial statements under the accrual basis of accounting should: - prepare a cash flow statement in accordance with the requirements of this Standard, - should present it as an integral part of its financial statements for each period for which financial statements are presented. IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Benefits of Cash flow information Is useful in providing users of financial statements with information for both accountability and decision-making purposes.

allows users to ascertain how a public sector entity raised the cash it required to fund its activities, and the manner in which that cash was used.

In making and evaluating decisions about the allocation of resources, such as the sustainability of the entity’s activities, users require an understanding of the timing and certainty of cash flows.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Definitions • Cash comprises cash on hand and demand deposits. • Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. • Cash flows are inflows and outflows of cash and cash equivalents. IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Presentation, structure & content of the Cash Flow Statement The cash flows are reported separately by – operating activities, – investing activities, and – financing activities

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Cash Flow from Operating Activities The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity are funded: (a) By way of taxes (directly and indirectly); or (b) From the recipients of goods and services provided by the entity. IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Reporting Cash Flows from Operating Activities using either: • (a) The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; (also encouraged to provide a reconciliation of the surplus/deficit from ordinary activities with the net cash flow from operating activities). or • (b) The indirect method, whereby net surplus or deficit is adjusted for the effects of transactions of a noncash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of revenue or expense associated with investing or financing cash flows. IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Examples (a) Cash receipts from charges for goods and services provided by the entity

(b) Cash receipts from taxes, levies, and fines

(c) Cash receipts from grants or transfers and other appropriations or other budget authority made by central government or other public sector entities

(d) Cash receipts from royalties, fees, commissions, and other revenue

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Examples (e) Cash payments to other public sector entities to finance their operations (not including loans)

(g) Cash payments to and on behalf of employees

(f) Cash payments to suppliers for goods and services

(h) Cash receipts and cash payments of an insurance entity for premiums and claims, annuities, and other policy benefits

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Examples (i) Cash payments of local property taxes or income taxes (where appropriate) in relation to operating activities

(j) Cash receipts and payments from contracts held for dealing or trading purposes

(k) Cash receipts or payments from discontinuing operations

(l) Cash receipts or payments in relation to litigation settlements.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Cash flow from Investing Activities Mainly consist of cash payments to acquire resources that are intended to contribute to the entity’s future public service delivery.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Examples (a) Cash payments to acquire property, plant and equipment, intangibles, and other long-term assets.

(b) Cash receipts from sales of property, plant and equipment, intangibles, and other long-term assets

(c) Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes)

(d) Cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Examples (e) Cash advances and loans made to other parties

(f) Cash receipts from the repayment of advances and loans made to other parties

(g) Cash payments for futures contracts, forward contracts, option contracts, and swap contracts, except when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities

(h) Cash receipts from futures contracts, forward contracts, option contracts, and swap contracts, except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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Cash Flows arising from Financing Activities Present valuable information in that they show future claims by providers of capital to the entity.

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012 16

Examples (a) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages, and other short or longterm borrowings

(b) Cash repayments of amounts borrowed

(c) Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012

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ILLUSTRATIVE EXAMPLE CASH FLOW STATEMENT

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012 18

Q&A

IPSAS Accrual Accounting Workshop- Jabatan Akauntan Negara 28-29 Aug 2012 19

[email protected]

IPSAS Accrual Accounting Workshop – Jabatan Akuntan Negara 28-29 August 2012

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IPSAS2 CASH FLOW STATEMENT

IPSAS2 CASH FLOW STATEMENT Asso Prof Dr Ruhaya Atan PJK. CA (M) Accounting Research Institute, Faculty of Accountancy, UiTM [email protected] ...

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