Accounting Rule No. (٧)
Cash Flow Statement
Accounting and Auditing Standards Board of the Republic of Iraq in its
session held on ٣٠/٠٧/١٩٩٦ approved the following accounting rule on
preparing the cash flow statement as part of the annual financial
statements.
Objectives and Scope
١. This rule is aimed at:
a. Providing information about cash flows for the users of financial
statements to create a basis for identifying and evaluating the
entity's ability to generate cash and cash equivalents, utilization
areas, the timing and the degree of certainty of their generation in
the future.
b. Obliging entities to provide information about the changes in cash
and cash equivalents by preparing the cash flow statement which is
classified according to the entity activities.
c. Consolidating the bases used in the preparation of cash flow
statement by various economic activities. The statement is prepared
according to the concept of cash and its equivalents.
٢. The following entities shall prepare the cash flow statement according
to the requirements of this rule as an integral part of the annual financial
statements:
a.
b.
c.
d.
Public sector entities.
Mixed sector entities.
Private and public joint stock companies.
Branches of foreign economic companies and institutions operating
in Iraq.
e. Banks and financial institutions.
٣. The following terms shall have the meanings specified :
Cash includes cash in the Fund and banks.
١
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Cash equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Cash flows include inflows and outflows of cash and its equivalents.
Operating activities are the main activities that produce revenues for the
entity and other activities that are not investing or financing activities.
Investing activities are the acquisition and disposal of fixed assets and
other investments that are not included in cash equivalents.
Financing activities are activities that result in changes in the size and
composition of the property equity and borrowed funds of the entity.
Cash and cash equivalents:
٤. An entity holds cash and cash equivalents for the purpose of meeting
short-term cash commitments rather than for investment or other
purposes. For an investment to qualify as a cash equivalent, it must be
readily convertible to a known amount of cash and be subject to an
insignificant risk of changes in value. It does not include investments in
stocks and bonds.
٥. The overdraft is one of the components of cash and cash equivalents
other than bank loans.
٦. The movements between items that constitute cash and cash
equivalent are not cash flows.
Presentation of cash flow statement:
٧. The entity present cash flows during the fiscal period classified by the
operating, investing and financing activities, in way that allows users to
assess the impact of those activities on the financial position of the entity
and the amount of its cash and cash equivalents and to evaluate the
relationships among those activities.
٨. A single transaction may include cash flows that are classified
differently. For example, when the cash paid to repay the loan and its
interests, the interest element may be classified as an operating activity
and the loan amount may be classified as a financing activity.
٢
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Operating activities:
٩. The cash flows arising from operating activities is the key indicator of
the entity’s ability to generate sufficient cash flows to repay its liabilities ,
maintain the operating capability, pay dividends and provide new
investments without the need for external sources of financing.
١٠. The cash flows of the operating activities are primarily consist of the
key activities for generating revenue in the entity. Therefore, they
generally result from the transactions and other events that enter into the
determination of profit or loss.
Examples of cash flows from operating activities are:
a. Cash receipts from sale of goods and rendering services.
b. Cash receipts from concession rights, trademarks, fees,
commissions and other revenue.
c. Cash payments to suppliers for goods and services.
d. Cash payments to and on behalf of employees.
e. Cash payments and receipts of an insurance entity for premiums,
compensations, annuities and other policy benefits.
f. Cash payments or refunds of income taxes unless they not
generated from the financing and investing activities.
g. Cash receipts and payments from contracts held for dealing or
trading purposes.
١١. An entity may hold securities and loans for dealing or trading
purposes, so they dealt similar to the goods selected. Therefore, cash
flows arising from the purchase and sale of trading securities are
classified as operating activities since they relate to the main activity that
generate revenue of the entity.
Investing activities
The cash flows arising from investing activities are important because
they represent the extent to which expenditures have been made for
resources intended to generate future income and cash flows. Examples
of cash flows arising from investing activities are:
a. Cash payments to acquire fixed and intangible and other long-term
assets. These payments include those relating to capitalized
development costs and the self –constructed fixed assets.
b. Cash receipts from sales of fixed, intangible and other long-term
assets.
٣
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c. Cash payments to acquire stocks, securities or debt instruments and
other dealing methods related to the entity interests and joint
ventures (other than payments for those debts considered to be cash
equivalents or those held for trading purposes).
d. Cash receipts from selling the equity or debt instrument of other
entities and interests in joint ventures. (other than receipts for these
instruments considered as cash equivalents or those possessed for
trading purposes).
e. Cash advances and loans made to other parties (other than advances
and loans which are made by the financial institutions that are
considered as operating activities).
f. Cash receipts from loans and advances recovery given to other
parties (other than advances and loans for financial institutions
which are considered as operating activities).
g. Receipts and cash payments for future contracts, option contracts,
contracts down payments, and speculation contracts other than
those held for dealing or trading purposes, or the receipts and
payments which are classified as financing activities.
Financing Activities
١٣. The separate disclosure of cash flows from financing activities is
important, because it has a benefit in prediction of the future cash flows
claims by capital providers to the entity. Examples of the cash flows
arising from financing activities are:
a. Cash receipts from issuing shares or other equity instruments
b. Cash payments to owners to acquire or amortize the entity's shares.
c. Cash receipts from issuing loan securities, loans, drafts, bonds,
mortgages and other short or long-term borrowings.
d. Cash repayments of amounts borrowed.
e. Cash payments by a lessee to reduce the outstanding liabilities related
to long term finance lease.
٤
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Presentation of Cash Flows:
١٤. An entity shall prepare a separate statement with the main
classifications of total cash receipts and payments arising from operating,
investing and financing activities other than the cash flows listed in
paragraphs (١٥) and (١٦) which are stated as net amount.
١٥. The following cash flows arising from the operating, investing and
financing activities may be reported on a net basis:
A. cash receipts and payments on behalf of the customers when the cash
flows reflect the customers activities rather than those of the entity such
as:
(١) Acceptance and repayment of the demand deposits of a
bank.
(٢) Funds held for customers by an investing entity.
(٣) Rents collected on behalf of owners or paid over to them
B. cash receipts and payments for items in which the turnover is quick,
the amounts are large and the maturities are short . Examples are:
(l) Principal amounts relating to credit cards customers.
(٢) Purchasing and selling investments.
(٣) Any other short-term borrowings, such as loans which have a maturity
period of no more than three months.
١٦. The following cash flows of the financial institutions may be
reported on a net basis:
a. Cash receipts and payments for the acceptance and repayment of
deposits with fixed maturity date.
b. The placement of deposits with other financial institutions and
withdrawal of deposits from these institutions.
C. Payment of the cash advances and loans to customers and repayment
of those loans and advances.
٥
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Reporting Cash Flows from Operating Activities
١٧. The entity shall report the cash flows from operating activities using
one of the following methods:
a. Direct Method: whereby the main categories of cash receipts payments
are disclosed. These categories can be obtained either:
First. From the entity accounting records, or
Second. By adjusting sales and their costs (interest revenues and the like,
interest expenses and similar charges in the financial institutions), and
any items in the income statement for:
(١) The changes during the period in inventories and operating
receivables and payables.
(٢) Other non-cash items.
(٣) Other items in which cash effects are investing or financing cash
flows.
b. Indirect method: whereby net profit or loss is
following effects of transactions:
adjusted for the
(١) Changes during the period in inventories and operating receivables
and payables.
(٢) Non cash items such as depreciation, provisions, deferred taxes,
unrealized profits and loss of foreign currency.
(٣) Other items for which the cash effects are investing or financing cash
flows.
This method can be reported in the statement of revenues and expenses in
income statement and changes during the period in inventories and
operating receivables and payables
١٨. Direct method is preferred to be used to report the cash flows from
operating activities, because it provides more comprehensive information
for the estimation of future cash flows than that provided by the indirect
method.
٦
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Reporting Cash Flows from Investing and Financing
١٩. An entity shall report separately main flows of total cash receipts
and payments arising from investing and financing activities, except to
the extent that cash flows in both paragraphs (١٥), (١٦) are reported on a
net basis.
Reporting Cash Flows of Foreign Currencies:
٢٠. Cash flows arising from foreign currencies transactions are recorded
in Iraqi dinar by using exchange rate of foreign currency between Iraqi
dinar and foreign currency at the date of cash flow.
٢١. Cash flows of subsidiaries shall be translated at exchange rate
between the Iraqi dinar and foreign currency at the date of cash flow.
٢٢. Cash flows denominated in a foreign currency are reported in a way
consistent with the accounting standard No. (٤) (Accounting for effects of
changes in foreign currency rates). This permits the use of any exchange
rate that approximates the actual rate. For example, the weighted average
exchange rates for a period can be used to translate the cash flows of a
foreign subsidiary.
٢٣. Unrealized profits and losses arising from changes in exchange of the
foreign currencies are not considered as cash flows. However , the effect
of these changes on cash and owned or due cash equivalents will be
reported in the cash flows statement to reconcile the cash and cash
equivalents at the beginning and the end of the period. These changes are
shown separately from the cash flows from the different activities.
Extraordinary Items
٢٤. cash flows related to the gains or losses resulting from the events
and extraordinary processes of the entity that are not expected to take
(they are called extraordinary items) according to their emergence from
operating, investing or financing activities in order to make the financial
statement users able to understand their nature and effects on present and
future cash flows of the entity.
٧
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Interests and Dividends
٢٥. The cash flows from interest and dividends received or paid shall
each be disclosed separately. Each one shall be classified in a consistent
way from period to period, as operating, financing or investing activities.
٢٦ .The total amount of interest paid during a period is disclosed in the
cash flows statement whether it has been recognized as expenses or
capitalized in accordance with accounting rule no.٣ capitalization of
borrowing expenditures.
٢٧. Interest paid and received and dividends received are classified as
operating cash flows in financial institutions. However, there are many
alternatives to classify these cash flows for other entities. They can be
classified as operating cash flows because they enter into the
determination of net profit and loss or they can be classified as financing
cash flows because they are costs of obtaining financial resources or as
investment cash flows because they are revenues on investments.
Whatever the classifications are, the classification adopted from fiscal
year to another should be used.
٢٨. Dividends paid may be classified as financing cash flows because
they are a cost of obtaining financial resources, or as cash flows from
operating activities to help the financial statements users to determine the
ability of entity to pay dividends out operating cash flows.
Taxes on Income
٢٩. Taxes on the income arise from transactions which increase cash
flows which are classified in a statement of cash flows as operating,
investing or financing activities. It is often impractical to determine cash
flows as per the nature of activities, because they may arise in different
period from the cash flows of underlying transactions .Therefore taxes
paid are usually classified as cash flows from operating activities, unless
when it is practically possible to identify them as cash flows from
financing or investing activities, as appropriate. When tax cash flows are
allocated over more than one class of activity the total amount of taxes
paid is disclosed.
٨
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Investment subsidiaries and joint ventures
٣٠. When accounting for an investment in any associate or a subsidiary
accounted for by use of the equity or cost method, an investor restricts its
reporting in the statement of cash flow to the cash flows between itself
and other investee, for example, to dividends and advances.
٣١. For the entity the rights of which appear in a unit under a jointly
controlled entity using the proportionate consolidation, it shall report in
the consolidated cash flow statement its proportionate share of the cash
flows in the consolidated financial statement.
Owning and disowning of Shares in Subsidiaries and Other
Businesses
٣٢. Aggregated cash flows arising from owning or disowning of shares in
subsidiaries or other businesses are presented separately and classified as
investing activities.
٣٣. An entity shall disclose in aggregate in respect of both owning and
disowning the shares in subsidiaries and other businesses during the
period each of the following:
a. the total amount paid or received for owning and disowning of shares
b. the portion of the amount paid in cash and cash equivalents for owning
and disowning shares.
c. the amount of cash and cash equivalents in subsidiaries or businesses
owned or eliminated.
d. the amount of assets and liabilities other than cash and cash
equivalents in subsidiaries or businesses owned or eliminated as per age
groups.
Non Cash Transactions
٣٤. Investing and financing transactions that do not require the use of
cash or cash equivalents shall be excluded from a statement of cash flow.
Such transactions shall be disclosed elsewhere in the financial statements
in a way that provides all the relevant information about these investing
and financing. Examples of non-cash transactions are:
٩
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a. acquisition of assets for assuming third party commitment or by
means of a finance lease .
b. acquisition of an entity by means of issuing stocks.
c. conversion of debts to stocks.
Disclosure
٣٥. An entity shall disclose the components of cash and cash equivalents,
and shall present a reconciliation of the amounts in the cash flow with the
equivalent items reported in the balance sheet.
٣٦. An entity shall disclose the policy which it adopts to determine the
composition of cash and cash equivalents to comply with stander No. (٦)
"Disclosure of financial statements and accounting policies related
information".
٣٧. An entity shall disclose in the management report the amount of cash
and cash equivalents balances held by the entity but not available for use
by the group (parent company and its subsidiaries). For example, cash
and cash equivalents balances held by a subsidiary that operates in a
country where exchange control or other legal restrictions apply when the
balances are not available for general use by the parent or its subsidiaries.
٣٨. Disclosing in the management`s report of any additional information
that is appropriate for financial statements' users which helps them to
understand the entity`s financial position and liquidity, examples of such
information are:
a. amounts of undrawn borrowing facilities that may be available for
future operating activities and repayment of capital commitments
indicating any restrictions on the use of these facilities.
b. aggregate amounts of cash flows from all operating, investing and
financing activities related to interests of joint ventures that report its
statements by using the method of proportionate consolidation.
c. aggregate amounts of cash flows that represent the increase in
operating capacity separately from those cash flows to maintain the
operating capacity, because this helps to know the entity`s capacity to
invest its money while maintaining its operating capacity.
١٠
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d. Cash flows amounts arising from operating, investing and financing
activities on which segmental reports are prepared as per industry and
geographical area, because this helps to better understand
the
relationship between the entity`s cash flows as a whole and cash flows of
its main parts.
Effective date
٣٩. This rule becomes operative for financial statements of the fiscal year
ended on ٣١/١٢/١٩٩٧.
٤٠. when there is a case on which an appropriate judgment is not included
in this rule, discretion may be practiced in light of provisions of
international rules or adopted and generally accepted practices, provided
disclosing this case in the financial statement
Mechanism of preparing a cash flow statement
١. preparation mechanism in manual accounting system:
a. The responsibility of preparing cash flow statement lies within the
financial department of the company. It is preferred to name an
accountant in the department with the task of preparing the statement.
b.
The said accountant will be provided with documents of expenditure,
receipts and vouchers after the balance sheet accountant carried them
to relevant accounting records.
c.
The vouchers and receipts are adopted for the statement purposes
because they contain actual cash movement exclusively. As for
entries, they are adopted for statement purposes when making entries
related to cash movement of the bank in term of deposits, interests,
commissions, receivable and payable notices related to the actual
cash movement.
d.
The accountant in charge will prepare a statement by marking
mentioned documents at the upper side with abbreviations
mentioned below according to finance nature in terms of being cash
inflows and outflows, and the way they are reported in terms of
being operating, financing or investing cash flows. To facilitate the
١١
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marking process, a stamp is prepared that contains the following
abbreviations:
C.F
O
F
I
I
O
The accountant marks the specified field with the symbol * according to
the nature of cash movement. The abbreviations above stands for the
following:
Abbreviation
Full word
C.I
cash inflow
C.O
cash outflow
OP
Operating
FI
Financing
IN
investing
e.
Accordingly, the accountant in charge of preparing the statement of
cash flow shall daily mark each document with the relative stamp by
means of the abbreviations mentioned above, and identify the flow
as operating, financing or investing by explanations recorded on the
document and its attachments.
f.
At the same time, after marking documents when submitted, the
accountant shall post them to the record of preparing this cash flow
statement, in case the accounting system is not automated and the
work is made manually. The said record is organized according to
the classification mentioned in item (d) above and according to the
pattern attached. By monthly, quarterly or annual aggregation of
specific fields in the record, a cash flow statement can be prepared
according to the content expressed by the accounting rule no. (g) and
statement pattern circulated by the Federal Board of Supreme Audit.
It is submitted to departments concerned and the senior management
and is attached to the annual financial statements.
١٢
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g.
A form of (record of preparing cash flow statement) is attached to
which information is posited by the accountant concerned on a daily
basis from vouchers, entries and receipts according to what was
mentioned above. The columns are classified according to the nature
of cash flow indicated in the rule and guideline.
h.
Considering carried over cash balance when preparing the said
statement.
٢- Mechanism of preparing cash flow statement in an automated
accounting system
In case the accounting system is an automated one where computers are
used to record, post and prepare the entry as well as extracting financial
reports, the mechanism of preparation of cash flow statement will be
easier, clearer and properly faster .The requirements are shown below:
A. A sub-computer program linked to the automated accounting system is
designed for preparing a cash flow statement. The cash flow movement
according to classifications and reporting methods adopted by the
accounting rule.
B. A box is created within the (printed) vouchers, receipts and entries to
fit the stamp mentioned in (d) (١) as shown below:
C.F
O
I
O
F
I
The document is marked by competent accountant with the symbol (*) in
the appropriate column according to the abbreviations in (d) (١).
C. The design of the said program shall include extracting cash flow
statement on a monthly and quarterly basis as well as at the end of year
and shall be attached to financial statements.
The following are samples of records that are maintained by the
accountant:
١٣
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Cash flow statement preparation record
٢ .Cash Inflows (C.I )
٢.A. Operating (O)
N
Document
No.
Date
Type
( voucher )
(receipt )
(entry)
receivables
Creditor account title
Amount
in dinar
Transfer
revenue
Other
revenue
Revenue of
trading
vouchers
Insurance
company
damages
Other
Note:
The amount of the transaction shall be recorded in the related
account column.
Cash flow statement preparation record
٢. Cash inflow(C.I)
٢. B. Financing-(F)
N Docu
ment
No.
Date
Type
(voucher)
(receipt )
(entry)
Amount
in dinar
Creditor account title
Subsidies
Financin
g grants
Longterm
loans
Cash contributions
received for covering
central unites expenses
Note:
The amount of the transaction shall be recorded in the related
account column.
١٤
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Cash flow statement preparation record
٢. Cash inflow (C.I)
٢. C. Investing (I)
N Document
No.
Date
Document type
(voucher)
(receipt )
(entry)
Amount
in dinar
Fixed
assets
sales
Creditor account title
Investment
sales
Sale of stock
and commodity
supplies
Investment
profits
Loan
recovery
Note:
The amount of the transaction shall be recorded in the related
account column.
Cash flow statement preparation record
١. Cash outflows(C.O.)
١. a. Operating (O)
N Document
No.
Date
Document
type
(voucher)
(receipt )
(entry)
Amount
in dinar
Creditor account tite
stock
payables
Operating expenses
Note:
The amount of the transaction shall be recorded in the related
account column.
١٥
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Red
interest
Cash flow statement preparation record
١. Cash outflows (C.O)
١. B. financing (F)
N Document
No.
Date
Document
type
(voucher)
(receipt )
(entry)
Amount in
dinars
Creditor account title
Loans
repayment
Dividends
Cash contributions received
to cover central unites
expenses
Note:
The amount of the transaction shall be recorded in the related
account column.
Cash flow statement preparation record
١. Cash outflow(C.O.)
١. C. Investing (I)
N Document
No.
Date
Document
type
(voucher)
(receipt )
(entry)
Amount in
dinar
Creditor account title
Purchase of
Fixed
assets
Purchase of
Investment
paid loans
Note:
The amount of the transaction shall be recorded in the related
account column.
١٦
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