Global Journal of Management and Business Research, C: Finance, Volume 22 Issue 5

the advice to use the cash flow statement expressed only in terms of cash flows, giving information, to avoid errors, of what should be meant by cash flow. The international standard IAS 7 provides an unequivocal definition of cash flow and cash equivalent. In extremely concise terms, those as mentioned above international standard states that. “cash and cash equivalents identify forms of liquidity held to meet financial needs, especially in the very short term, and not for investment or other non-typical financial, capital or investment purposes. For a value to qualify as cash or cash equivalent it must be convertible to cash in a known amount and must not be subject to any risk of change in value. Thus, an item can only be defined as cash or cash equivalent if it has a short maturity date (typically less than three months from the date of acquisition). It is clear from this definition that share purchases, for example, cannot be considered cash equivalents unless special circumstances arise. In fact, if preferred shares with a maturity of less than three months or with a redemption date less than three months are purchased, share purchases could also be considered cash equivalents. Bank loans are generally considered financing activities. However, in some countries, bank overdrafts repayable on demand are an integral part of a company's liquid assets. Therefore, in these particular cases, such loans may be considered part of cash equivalents. IAS 7 emphasises how 'cash flows exclude movements between items that constitute cash or cash equivalents, as these components are part of cash and cash equivalents' and how these components are part of a company's cash management rather than its operations, financial management or investment management. Liquidity management includes the investment of surplus cash in cash equivalents.” From the above, it is clear that any transaction that does not impact cash or cash equivalent is not considered in the context of drawing up the cash flow statement. This principle is highlighted in all national or international accounting standards and issued by any national or international organism. As far as the IAS/IFRS accounting standards are concerned, the cash flow statement is not governed by a compulsory structure at an elevated level. in fact, the international accounting standard merely highlights the potential content. It indicates a few examples of accounting items that must include in the various aggregates provided by the accounting standard. The international accounting standard IAS, 7 stipulates that it must include the following aggregations of inflows and outflows in the cash flow statement: 1. Operating activities 2. Investing activities 3. Financial activities IAS 7, in defining the three activities that must be the points of reference for regrouping all cash inflows and outflows, provides definitions of operating activities, investing activities and financial activities. As far as operating activities are concerned, in the writer's opinion, the international accounting standard cited does not provide a helpful definition of this activity since it provides a very general concept that, within it, at least in theory, could contain many items that it must instead include in investing and financial activities. The definition that IAS 7 gives of operating activities is as follows: operating activities are those from the performance from which the revenue-producing activities of the enterprise are principally derived. Therefore, the cash flows of operating activities derive from transactions and all other events that contribute to the determination of profit or loss. As can be understood, such a definition is not particularly effective in understanding operating activities. However, the international accounting standard above highlights some examples of items that should include in operating activities: *receipts of sales of goods and services made by the enterprise *payments made to employees, collaborators, or others working under forms of contract other than employment with the enterprise *payment of income taxes unless they can be identified explicitly with investment financing transactions (in which case it can see that the communicative effectiveness of the concept is certainly not excellent) *receipts of tax credits arising from previously paid income tax surpluses unless they can be identified explicitly with investment financing activities. the considerations made for the previous item also apply to this item *receipts arising from contracts held for trading or trading purposes in respect of sales or purchases of goods and services *payments arising from contracts held for dealing or trading purposes to trade in sales or purchases of goods and services Concerning the items to be included in investing activities, IAS 7 provides a list that should have in a concept of investing activities provided in the accounting standard. According to the international standard, first and foremost, the aggregation of cash flows from investing activities carried out separately from any other type of aggregate is important because the cash flows of this investing activity represent the degree to which expenses have been incurred and, therefore, income has been earned to acquire resources that, at least in the intentions of the managers, should be able to generate future cash flows. Expenses that fall under 15 Global Journal of Management and Business Research Volume XXII Issue V Version I Year 2022 ( ) C © 2022 Global Journals Does the Formal Structure of the Cash Flow Statement have an Impact on the Understanding of the Data Contained in the Report Explaining the Company's Financial Dynamics?