People often argue that banks’ cash flow statements do not provide useful information. In this post, I explore whether a cash flow statement can provide useful information about most banks’ core operations: deposit-taking and lending. I discuss below: Basic example I will start with a simple example, example 1. On 2 January 20X1, bank A:… Continue reading Cash flow statements for banks, insurers and investment funds
Tag: Primary financial statement
Digital reporting needs context
People sometimes suggest that the need for financial statements is disappearing fast. They argue that advances in digital reporting enable investors to look directly for the information they need, without being constrained by the format of the financial statements. In my view, those suggestions couldn’t be more wrong. It is a great development that investors… Continue reading Digital reporting needs context
Make the cash flow statement easier to understand
The indirect cash flow statement starts with a profit number and then reverses out the effects of accrual accounting to get to operating cash flow. That style of presentation is very difficult for non-accountants to understand. For example, by adding back accrued expenses (not yet paid), it makes accrued expenses look like an operating cash… Continue reading Make the cash flow statement easier to understand
Accounting is not a language
It has become a cliché to say that accounting is the language of business. That metaphor is helpful because it emphasises that accounting conveys vital information about business. But the metaphor can be unhelpful because, although accounting is a system for conveying information, accounting lacks most features of real human languages, such as Arabic, Chinese,… Continue reading Accounting is not a language
Recognition
When the IASB developed the 2018 version of its Conceptual Framework for Financial Statements (2018), it created a set of principles that it believed would provide a more coherent base for its future decisions on recognition. The post summarises how those principles differ from the recognition criteria contained in the previous (2010) version of the… Continue reading Recognition
The hardest question in standard-setting?
When accounting standard-setters have to make decisions about recognition and measurement, they often face two competing claims: some people argue that investors will under-react if companies are forced to recognise something; but other people argue that investors will over-react if companies are forced to recognise that thing. Standard-setters would love to get evidence that would… Continue reading The hardest question in standard-setting?
Putting the wrong kinds of numbers in P&L won’t help save the planet
Many companies will need to spend a lot of money reshaping their businesses to help save the planet. Some environmental campaigners say that companies should book all that spending as liabilities today. They argue that booking that spending today would make investors focus on that information and that investors would then put pressure on companies… Continue reading Putting the wrong kinds of numbers in P&L won’t help save the planet