FRC Investigate Cash Flow Disclosures
The UK’s Financial Reporting Council (FRC) have published a report examining how effective disclosures of cash flow in annual reports are for investor needs.
Investors need information on the generation, availability and use of cash as part of their assessment and analysis – but do current cash flow statements provide enough information?
The FRC’s report indicates that the disclosures that are most useful to investors in terms of cash flow information are often found outside the cash flow statement, and perhaps outside of the annual report completely.
Investors want disclosures that provide a clear, metric-based description of performance drivers – and that while both numbers and narrative are crucial, the most effective reports combined the two. They want detail on the sources of cash, which currently is an area lacking clarity in the annual reports surveyed, and detail on the use of cash and relevant risks.
Of course, as we have seen this year, with Inline XBRL it is possible to create glossy financial reports that both provide the narrative investors find useful while also ensuring the relevant information is tagged and easily analysed.
Read the report here.