UKEB Research Update - Statement of Cash Flows and Related Matters
International Forum of Accounting Standard Setters (IFASS) 30 April 2026
Paul Lee – UKEB Chair
The views expressed in this presentation are those of the presenter and not necessarily those of the Endorsement Board, nor are they necessarily reflective of any official policy or position.
Background to UKEB's research project
- The UKEB embarked on a proactive research project in October 2024 to:
- Enable the UKEB to gather an evidence base to contribute to the work of the IASB
- Ensure that any future amendments to the standard reflect the views of UK stakeholders
- UKEB research involved:
- Financial Statements Analysis – non-mandatory disclosures ('encouraged' by IAS 7), voluntary disclosures and other cash flow measures
- User interviews: with Investors and Creditor and a User poll
- Preparer interviews
Investors/Creditors: The statement of cash flows is useful for users of financial statements for non-financial institutions
"the statement of cash flows is more important than the statement of profit and loss"
UKEB Research Project: Outputs to date
- Research paper 1
- Background and key issues (Dec-2024)
- Desk-based research
- Research paper 2
- Non-mandatory and voluntary disclosures (Feb-2025)
- Review of a sample of 30 UK annual reports
- Research paper 3
- UK User & preparer perspectives (Mar-2025)
- Interviews with 12 UK users and 12 UK preparers
- User poll
- UK Users' views (30-day consultation Mar to Apr-2025)
- 32 user respondents
- Summary booklet
- Summary of first three UKEB papers (Jul-2025)
- Summary of first three UKEB research papers and results of UKEB User Poll
- Research paper 4
- UK Users' views on potential ways forward (Jul-2025) Developing and testing alternative SCF and voluntary disclosures with AGs/Board
- Research paper 5
- Net debt disclosures (Nov-2025)
- Review of sample of 40 annual report in four top indebted jurisdictions
- Research paper 6
- Coming soon (May 2026)....SCF for Banks and Insurers
- Stakeholder interviews/UKEB AGs - possible approaches for IASB to consider
Research – Potential ways forward
- UK stakeholders consider that there are opportunities for targeted improvements to enhance reporting of cash flow (and non-cash) information
- Specific opportunities and benefits identified by stakeholders include:
- Improving cohesiveness between the primary financial statements by introducing overarching principles,
- Potential supplementary disclosures specific to the statement of cash flows to link amounts disclosed in the primary financial statements
- Enhancing interconnectivity between IFRS Accounting Standards to elevate the importance of the statement of cash flows
Source: UKEB Research paper 4 (Jul-2025)
Financial Statements Cohesiveness
Opportunities
- Relevant information often scattered across the financial statements and notes
- Few companies provide cross-references to the notes for relevant cash flows
- Users of financial statements want to be able to link information between the primary financial statements, between those statements and the notes, and between the notes.
- Cohesiveness of the financial statements could be improved by
- specifying overarching principles to ensure that the financial statements provide sufficient disaggregation of information to enable users to link items included in the statement of cash flows with the other primary financial statements and the notes, including, but not limited to:
- cross referencing
- enhancing existing notes i.e. fixed asset additions disaggregated between cash transactions and non-cash items e.g. accruals, acquired through an acquisition
- more supplementary disclosures
- Qualitative disclosure through commentary on the statement of cash flows
- specifying overarching principles to ensure that the financial statements provide sufficient disaggregation of information to enable users to link items included in the statement of cash flows with the other primary financial statements and the notes, including, but not limited to:
- Cohesiveness of the financial statements could be improved by
Financial Statements Cohesiveness
Benefits
- The statement of cash flows is seen as a key financial statement, helping users to understand the quality and sustainability of financial performance.
- A cohesiveness principle would support this by:
- enabling reconciliation of the cash flow statement to the other primary financial statements i.e. balance sheet and income statement
- improving transparency on how the information disclosed in the notes relates to each other e.g. share-based payments, derivatives, leases, capital expenditure and the impact of business combinations
- improving the requirements in IAS 7, to require disclosure of changes arising from cash flows, non-cash transactions, and other non-cash changes, such as:
- changes arising from obtaining or losing control of subsidiaries or other businesses
- the non-cash effect of changes in foreign exchange rates and fair values
Supplementary disclosures
Opportunities and Benefits
- Users have identified supplementary disclosures that, if cross-referenced, would enhance the usefulness of the statement of cash flows and the financial statements more generally.
- Based on voluntary disclosures provided in the UK, users are keen to see:
- An integrated statement of net debt movement– highest priority for most UK users
- extending/incorporating the existing requirement in IAS 7 to provide information about changes in liabilities arising from financing activities
- to clearly link to the information reported in the statement of cash flows
- Reconciliation of changes in working capital – entity-specific breakdown reconciling the statement of cash flows to the balance sheet movements for the respective components of working capital
- Increasing information on relevant non-cash information (both non-cash transactions and other non-cash changes)
- More transparency for exceptional items i.e. material non-recurring or infrequently recurring items, including the impact on both the income statement and statement of cash flows, included in a single disclosure note
- Presenting cash flow management defined (non-GAAP) performance measures (MPMs) i.e. free cash flow supported by IFRS-defined sub-totals
- An integrated statement of net debt movement– highest priority for most UK users
Supplementary disclosures
Net Debt Reconciliation Opportunities and Benefits
- A net debt reconciliation was seen as a significant opportunity to enhance the information about cash flow, particular highlighting the impact of non-cash transactions, and enhancing consistency of existing requirements relating to financing activities. (see slide 10 for example)
Investors/Creditors: Net debt is very important– a definition of net debt would be useful, or at least an IFRS –defined measure against which an entity can disclose its adjusted net debt as an MPM
Users need to understand the impact of: - business combinations i.e. net debt acquired - factoring and reverse factoring
A mandatory net debt disclosure reconciled to the statement of cash flows, and more generally reconciled to the primary financial statements, would be useful, as it would improve cohesiveness for users
Net Debt
International Prevalence of Net Debt as a performance metric
| Australia | Europe | Canada | Japan | TOTAL | |
|---|---|---|---|---|---|
| No. of annual reports sampled | 10 | 10 | 10 | 10 | 40 |
| No. of companies with net debt as a key performance indicator (front half) | 9 | 7 | 6 | 3 | 25 |
| No. of companies with net debt disclosed in financial statements (back half) | 8 | 6 | 6 | 4 | 24 |
| Average number of references to net debt in management commentary | 8 | 19 | 16 | 1 | |
| Average number of references to net debt in financial statements | 15 | 12 | 7 | 2 |
Net Debt Reconciliation
Example Consolidated cash flow statement continued Year ended 31 December 2025
The movement in net cash/(debt) (defined by the Group as including the items shown below) is as follows:
| At 1 January £m | Funds flow £m | Net funds on disposal of business £m | Exchange differences £m | Fair value adjustments £m | Reclassi- fications £m | Other movements £m | At 31 December £m | |
|---|---|---|---|---|---|---|---|---|
| 2025 | ||||||||
| Cash at bank and in hand | 714 | 182 | – | (7) | – | – | – | 889 |
| Money market funds | 1,900 | 484 | – | – | 40 | – | – | 2,424 |
| Short-term deposits | 2,961 | (12) | – | (18) | – | – | – | 2,931 |
| Cash and cash equivalents (per balance sheet) | 5,575 | 654 | – | 15 | – | – | – | 6,244 |
| Overdrafts | (2) | (1) | – | – | – | – | – | (3) |
| Cash and cash equivalents (per cash flow statement) | 5,573 | 653 | – | 15 | – | – | – | 6,241 |
| Other current borrowings | (799) | 750 | – | (32) | 40 | (988) | (2) | (1,031) |
| Non-current borrowings | (2,776) | – | – | 54 | (32) | 988 | (2) | (1,768) |
| Lease liabilities | (1,555) | 232 | – | 81 | – | – | (228) | (1,470) |
| Lease liabilities included within liabilities held for sale | (1) | – | 1 | – | – | – | – | – |
| Financial liabilities | (5,131) | 982 | 1 | 103 | 8 | – | (232) | (4,269) |
| Net cash/(debt) excluding the fair value of swaps | 442 | 1,635 | 1 | 118 | 8 | – | (232) | 1,972 |
| Fair value of swaps hedging fixed rate borrowings¹ | 33 | (93) | – | (22) | 5 | – | – | (77) |
| Net cash/(debt) | 475 | 1,542 | 1 | 96 | 13 | – | (232) | 1,895 |
Source: Rolls Royce Annual Report 2025 (p118)
Supplementary disclosures
Net Debt Reconciliation Recommendations
- Users said that this disclosure is useful in assessing liquidity, solvency, and financial flexibility, and improves cohesiveness of the financial statements, where reconciled to SCF
- Users need to understand the impact on net debt of:
- acquired debt through business combinations
- factoring and supply chain finance (reverse factoring) arrangements
- A net debt disclosure would simply be an extension of the existing requirements in IAS 7.44A-44E, for changes in liabilities arising from financing activities, showing both cash and non-cash changes.
- A baseline net debt IFRS definition would be useful, so that entities can disclose a reconciliation of their entity-specific adjusted net debt to that IFRS-defined measure, to make it easier for users to compare entity-specific net debts i.e. the adjusting items are transparent.
- Mandating a net debt reconciliation in the financial statements would provide greater consistency and audit assurance to users across all companies.
Supplementary disclosures
Working Capital Movements Opportunities and Benefits
- Few UK-listed companies sampled provided a voluntary disclosure of working capital movements (an example can be seen on the next slide)
- Users see working capital a core element of ongoing business but said they could not reconcile the working capital movement in the statement of cash flows to the movements in the balance sheet
- Working capital is not defined in IFRS
Investors/Creditors: Working capital movement is very important - entity-specific component breakdown would help users understand what entity considers are its components of working capital - users need to understand the impact of - business combinations - factoring and reverse factoring
A working capital movements disclosure reconciled to the statement of cash flows and to the movement on the statement of financial position.
Working capital movements
Example
IFRS Accounting Standards do not include requirements for a company to explain the relationship between the composition of 'operating receivables and payables' in IAS 7 and 'trade and other receivables', 'trade and other payables' and 'current and non-current' assets and liabilities in IAS 1 (IFRS 18).
Example disclosure: reconciliation of working capital movements in the cash flow statement to the balance sheet
| Inventories £m | Financial assets at fair value through OCI £m | Trade and other receivables £m | Amounts due from Financial Services customers £m | Trade and other payables £m | Amounts due to Financial Services customers and other deposits £m | Provisions £m | |
|---|---|---|---|---|---|---|---|
| At 4 March 2023 | 1,899 | 1,009 | 683 | 5,392 | (4,837) | (5,946) | (272) |
| At 5 March 2022 | 1,797 | 800 | 748 | 5,189 | (4,570) | (5,259) | (271) |
| Balance sheet movement | (102) | (209) | 65 | (203) | 267 | 687 | 1 |
| Fair value movements | – | 2 | (27) | – | – | – | – |
| Hedge adjustments | (3) | – | – | – | (2) | – | – |
| Interest in working capital | – | – | – | – | 9 | – | – |
| Reclassification to other lines in the cash flow statement | – | – | 3 | – | 11 | – | – |
| Financial Services ECL impairments | – | – | – | (76) | – | – | – |
| Movement in capital accruals | – | – | – | – | (8) | – | – |
| Other | – | – | – | (1) | 3 | – | (1) |
| Movement shown in cash flow statement | (105) | (207) | 68 | (307) | 280 | 687 | – |
J Sainsbury plc, Annual Report and Accounts 2023, p189
Supplementary disclosures
Exceptional or Non-recurring items Opportunities and Benefits
- Better information on exceptional (non-recurring or infrequently recurring) or other adjusting items would help users assess long-term cash flows.
- Information on the cash impact is not widely reported by UK-listed companies sampled (an example of disclosure can be seen on the next slide)
- Information needs to include the impact i.e. amount and category (operating, investing, financing) included in
- Statement of cash flows
- Income statement
Cash flow impact of exceptional items
Example
The example demonstrates how the cash impact of exceptional and other adjusting items can be disaggregated: * by nature; and * by cash flow classification, clearly showing exceptional cash flows relating to operating, investing and financing activities.
Example disclosure: cash flow statement impacts of adjusting items across all cash flow categories
The table below shows the impact of adjusting items on the Group cash flow statement:
| Cash flows from operating activities | Cash flows from investing activities | Cash flows from financing activities | ||||
|---|---|---|---|---|---|---|
| 52 weeks 2024 £m | 52 weeks 2023 (restated)(a) £m | 52 weeks 2024 £m | 52 weeks 2023 £m | 52 weeks 2024 £m | 52 weeks 2023 £m | |
| Property transactions(b) | – | – | 53 | 335 | – | – |
| Disposal of subsidiaries(c) | – | – | 15 | – | – | – |
| Restructuring(a) | (100) | (68) | – | – | – | – |
| Disposal of China associate | – | – | 9 | – | – | – |
| Customer redress claims settlement in Tesco Bank | (4) | – | – | – | – | – |
| ATM business rates refund | – | 5 | – | – | – | – |
| Disposal of Asia operations | – | (2) | – | – | – | – |
| Acquisition of property joint venture | – | – | 7 | (40) | – | – |
| Special dividend | – | – | – | – | (1) | (1) |
| Total adjusting items from continuing operations | (100) | (69) | 84 | 295 | (1) | (1) |
| Adjusting items relating to discontinued operations | (1) | (8) | – | – | – | – |
| Total | (101) | (77) | 84 | 295 | (1) | (1) |
| (a) Comparatives have been restated to present Banking operations as a discontinued operation. Refer to Notes 1 and 7. | ||||||
| (b) Property transactions include £14m proceeds (2023: £43m) relating to the sale of stores in Poland not included in the sale of the corporate business. | ||||||
| (c) On 30 June 2023, the Group disposed of its Booker subsidiary Ritter-Courivaud Limited, part of the UK & ROI segment. | ||||||
| (d) Cash outflows relating to operational restructuring changes as part of the multi-year 'Save to Invest' programme, which commenced in June 2022. |
Tesco PLC, Annual Report and Accounts 2024, p147
Supplementary disclosures
Non-cash information Opportunities and Benefits
- Non-cash transactions – information provide users with better insight into the cash position and help them compare companies. However
- Information is often scattered
- Users cannot reconcile between the primary financial statements and the notes
- Insufficient information on transactions such as:
- leases
- factoring trade receivables and reverse factoring (supply chain financing) trade payables
- share-based payments
- Possible solution: single note disclosure of non-cash (see next slide)
- Other non-cash items
- users want to understand the material effects on balance sheet movements to enable users to link information in the statement of financial position with information in the statement of cash flows including foreign currency exchange translation differences, fair value movement, and the effects of business combinations
Non-cash transactions
Example
An example of how non-cash transactions might be disclosed in one note to make information more accessible to users is set out below. This would include factoring of trade receivables, property, plant, and equipment (PPE) acquired by means of a lease, share-based payments, debt to equity conversions, etc.
Not shown below, each line would be cross-referenced to the note(s) where further information regarding the transaction(s) could be found.
| Type of non-cash transaction | Operating activities 2024 £m | Operating activities 2023 £m | Investing activities 2024 £m | Investing activities 2023 £m | Financing activities 2024 £m | Financing activities 2023 £m |
|---|---|---|---|---|---|---|
| Collection and onward transmission from factored receivables (non-recourse arrangements) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Reverse factoring of trade payables | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Non-cash consideration received from (paid to) customers | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Asset contributions from customers at nil cost | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Equity-settled share-based payment charges | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Withholding taxes and fees deducted at source | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Government grants, R&D credits, etc | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Acquisition of property, plant and equipment by means of a lease | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Acquisition of subsidiary by issue of ordinary shares | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Capitalisation of costs (e.g. borrowing costs and staff costs) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Non-cash exchanges of assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Debt-to-equity conversions | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Interest expense on discounted debt, commercial paper, zero coupon bonds, etc | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Impact of derivative financial instruments | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Stock options paid to employees | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Other (with details) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total non-cash transactions with similar economic impact as cash flows | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| **** The impact on the cash flows in the current year would need to be transparent to ensure no double-counting e.g. lease payments made in the reporting year that a new lease is entered into |
Elevating the importance of the Statement of Cash Flows
- Companies currently approach the statement of cash flows as a compliance exercise rather than a valuable financial tool
- Cash flow information is of significant importance to investors, yet the current accounting standard is not always leading companies to provide the information that users need
- IFRS Accounting Standards other than IAS 7, frequently include explicit income statement or balance sheet related disclosure requirements, but they rarely require cash flow related disclosures
Elevating the importance of the SCF
Interconnectivity between IFRS Accounting Standards
- To strengthen the connection between IFRS Accounting Standards and to elevate the importance of the statement of cash flows, there are opportunities for the IASB to
- refer to the statement of cash flows, and the classification principles and disclosure objectives in IAS 7
- ensure that principles in IAS 7 are sufficiently clear to enable preparers to apply the standard
Examples of observed 'voluntary' or 'suggested' disclosures
- Leases
- IFRS 16 Leases
- Capital Expenditure
- IAS 16 Property, Plant & Equipment
- IAS 36 Intangible Assets
- M&A, divestitures
- IFRS 12 Disclosure of Interests in Other Entities
- IFRS 3 Business Combinations
- Derivatives
- IFRS 9 Financial Instruments
- Factoring receivables
- IFRS 7 Financial Instruments: Disclosures
- Share-based payments*
- IFRS 2 Share-based payments
- Provisions
- IAS 37 Provisions, Contingent Liabilities, etc
Q&A
Link to UKEB research: https://www.endorsement-board.uk/statement-of-cash-flows
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