Abstract
The liquidity crisis of the 1970s, marked by a series of severe financial disruptions, prompted
extensive research into the role and importance of cash flow accounting. A financial crisis can
be defined as a substantial drawdown from a previous peak, often triggered by a confluence
of factors such as excessive leveraging and the intricate interconnectedness of market
participants (Song et al., 2021). During this turbulent period, the global financial system
grappled with a multitude of liquidity issues, with far-reaching implications for the stability and
functioning of the international monetary system. A defining feature of this crisis was the
severe deterioration of trading conditions across various markets, sparking cascading knockon
effects in broader financial markets and significantly contributing to the ensuing economic
downturn. The cascading impact was characterised by disruptions spreading to other areas of
the financial system and ultimately fuelling a broader economic decline. In response to these
challenges, the International Accounting Standards Committee (IASC) introduced the
"Statement of Changes in Financial Position" in December 1977 as an initial step to enhance
financial reporting practices. This standard was later replaced by the International Accounting
Standard 7: “Statement of Cash Flows” (IAS 7) in April 2001, under the oversight of the
International Accounting Standards Board (IASB). The evolution of IAS 7 regarding cash flows
has been a testament to the ongoing efforts to refine and strengthen financial reporting
practices, with the ultimate goal of providing stakeholders with more comprehensive and
reliable cash flow information.
Variations in how entities interpret and apply the requirements of IAS 7 impede stakeholders’
ability to accurately assess and compare cash flow performance across entities. Stakeholders
rely heavily on the statement of cash flows to evaluate the financial health and overall
performance of entities. However, inconsistent reporting practices concerning cash flows
make it challenging for stakeholders to assess the cash flow position and performance of
entities precisely. These inconsistencies predominantly arise from the diverse interpretations
and applications of the IAS 7 requirements by the sampled reporting entities across different
industries, often facilitated by the flexibility accorded within the accounting standards. This
study investigated the presentation and disclosure of the statement of cash flows of selected
entities listed on the Johannesburg Stock Exchange (JSE), with a particular focus on the top
40 Index entities. The study's objective was to determine the comparability of these statements
of cash flows and assess their appropriateness and impact on the decision-usefulness for
stakeholders.
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To achieve the study objective, an empirical content analysis methodology was employed to
evaluate the annual financial statements of a sample of entities listed on the JSE for the 2023
financial period. The research further expanded the content analysis to incorporate a
disclosure index and a thematic content analysis. The disclosure index findings revealed that
65.3% of the sampled JSE-listed entities fully complied with the requirements set out in IAS 7.
Furthermore, the index study noted that 33.5% of the sample was categorised as "not
applicable", indicating that the relevant transactions necessitating specific disclosure had not
occurred for that portion of the sample. The thematic content analysis found that 65.2% of the
sample disclosures received an 'exemplary' rating, signifying that the majority of entities
effectively exceeded disclosure requirements and exhibited a high standard of transparency
and accuracy in their reporting practices. The remaining 33.5% of the sample disclosures were
categorised as 'not applicable' as the transactions requiring specific disclosures had not
occurred for those entities. These findings provide valuable insights into the extent to which
the reporting entities adhere to the IAS 7 requirements and the implications for stakeholders’
ability to make informed decisions based on the cash flow information provided.
This study makes a contribution to the existing knowledge and understanding surrounding the
presentation and disclosure of the statement of cash flows. It will also provide
recommendations to the IASB as they address and seek to further improve the reporting and
presentation of cash flow information as part of their Third Agenda Consultation when
assessing whether to make specific updates or overhaul IAS 7. Furthermore, the study's
findings highlight a range of potential avenues for future research to build upon the insights
generated within this domain.