[2025] 178 Taxmann.com 156 (Article)
1. Introduction
Indian Accounting Standard (Ind AS) 7, Statement of Cash Flows, requires entities to provide information about historical changes in cash and cash equivalents through a cash flow statement. The objective is to present cash flows during the period classified into operating, investing, and financing activities, thereby enabling users of financial statements to evaluate the entity’s ability to generate cash, its liquidity position, and the timing and certainty of future cash flows. Proper disclosure ensures transparency and comparability in financial reporting.
This article highlights the frequently observed areas of non-compliance in cash flow disclosures under Ind AS 7. With the support of practical illustrations, examples, and recommendations, it aims to provide preparers and auditors with clear insights to ensure robust, accurate, and compliant financial reporting practices.
2. Common Observation And Practical Solutions
2.1. Non-compliance with Ind AS 116 lease interest disclosure
It was observed that the cash flow statement discloses total lease liability payments, including interest, under a single head. However, Ind AS 116, Leases clearly indicates that the interest portion of the lease liability should be presented separately under financing activities.
For example, in FY 2023-24, XYZ Limited disclosed total lease liability payments of Rs. 50,00,000 in the Cash Flow Statement, which included an interest portion of Rs. 8,00,000. However, the company did not separately present the interest component of Rs. 8,00,000, which, in accordance with Ind AS 116, should have been disclosed under financing activities in the Cash Flow Statement.
2.1.1 Relevant Provisions under Ind AS 116
Extract of Para 50: In the statement of cash flows, a lessee shall classify:
(a) cash payments for the interest portion of the lease liability within financing activities, applying the requirements in Ind AS 7, Statement of Cash Flows, for interest paid;
2.1.2 Recommendation
To comply with Ind AS 116, the entity should present the interest component of lease liabilities separately under financing activities in the Statement of Cash Flows.
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