First of all, this assignment is mainly talk about the indirect method for the cash flow statement. The key issues to be discussed in this assignment is about whether the option of using the indirect method of cash flow reporting is beneficial to the users of general purpose financial reports in Australia. Furthermore, the reasons for harmonization, accounting standard AASB 107 Statement of Cash Flows and the Conceptual Framework will also be discussed. In AASB 107, cash flow is defines as inflows of the cash and cash equivalents and ‘cash’ as cash on hand and demand deposits. (AASB 107, 2011)
The statement of cash flow can be done using indirect method and direct method. Both methods have the three same categories which is cash flow from operating activities, investing activities and financing activities. However, the different between these methods are the ways that we calculate the net cash flow from the section operating activities. AASB 107 state that an entity using direct method shall report cash flows from operating activities are the major classes of gross cash receipts and gross cash payments are disclosed. For indirect method, profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. It also means reconciling from net income to cash provided by operating activities. (James collines,eHow Contributer e.d) Due to timeliness in conceptual framework, indirect method is often use by company because it presents a reconciliation of accrual accounting net income to cash from operating activities highlights unlike direct method required to provide a supplemental reconciliation of net income and net cash flow from operating (NCFO). When using the direct method, companies are