Appendix 3 - Presentation of the Statement of Cash Receipts and Payments in the
Format Required by IPSAS 2 Statements of Cash Flows
Paragraph 2.2.1 of Part 2 of this Standard encourages an entity which intends to migrate to the
accrual basis of accounting to present a statement of cash receipts and payments in the same
format as that required by IPSAS 2 Statement of Cash Flows. IPSAS 2 is applied by an
entity which reports on an accrual basis of accounting in accordance with International
Public Sector Accounting Standards.
This appendix provides a summary of key aspects of IPSAS 2 and guidance on their application
for financial reporting under the cash basis of accounting as required by this Standard.
Entities intending to present a statement of cash receipts and payments in accordance
with the requirements of IPSAS 2 as far as is appropriate will need to refer to that IPSAS.
Presentation in the Format Required by IPSAS 2 Statement of Cash Flows
1. IPSAS 2 Statement of Cash Flows requires an entity which prepares and presents
financial statements under the accrual basis of accounting to prepare a cash flow
statement which reports cash flows during the period classified by operating, investing
and financing activities as defined below.
Definitions
2. Financing activities are activities that result in changes in the size and
composition of the contributed capital and borrowings of the entity.
Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.
Operating activities are the activities of the entity that are not investing or financing
activities.
Components of the Financial Statements
3. In presenting a statement of cash receipts and payments in this format it may be
necessar y to classify cash flows arising fro m a single transaction in different
ways. (The term cash flow statement is used in the remainder of this appendix for a
statement of cash receipts and payments presented in the same format as that required
by IPSAS 2.) For example, when the cash repayment of a loan includes both interest
and capital, the interest element may be classified as an operating activity and the
capital element may be classified as a financing activity. An entity presenting
information by way of a cash flow statement presents its cash flows fro m operating,
investing and financing activities in a manner which is most appropriate to its
activities.
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4. A cash flow statement will include line items which present the following amounts:
(a) total receipts from operating activities;
(b) total payments on operating activities;
(c) net cash flows from operating activities;
(d) net cash flows from investing activities;
(e) net cash flows from financing activities;
(f) beginning and closing balances of cash; and
(g) net increase or decrease in cash.
Additional line items, headings and sub-totals will also be presented on the face of the
statement when such presentation is necessary to present fairly the entity's cash
flows.
5. An entity will also present on the face of the cash flow statement or in the notes:
(a) major classes of gro ss cash receipts and gross cash payments arising from
operating, investing and financing activities, except to the extent that paragraph
1.3.13 of Part 1 of this Standard allows reporting on a net basis;
(b) a sub-classification of total cash receipts from operations in a manner
appropriate to an entity's operations; and
(c) an analysis of payments on operating activities using a classification based
on either the nature of payments or t heir function within the entity, as
appropriate.
Separate disclosure of payments made for capital acquisitions and for interest and
dividends is also consistent with the requirements of IPS AS 2.
6. Disclosure of information about such matters as whether cash is generated fro m
taxes, fines, fees (operating activities), the sale of capital assets (investing
activities) and/or borrowings (financing activities) and whether it was expended to
meet operating costs, for the acquisition of capital assets (investing activities) or for
the retirement of debt (financing activities) will enhance transparency and
accountability of financial reports. These disclosures will also facilitate more informed
analysis and assessments of the entity's current cash resources and the likely sources
and sustainability of future cash inflows. Accordingly, this Standard encourages all
entities to disclose this information in the financial statements and/or related notes.
Operating Activities
7. The amount of net cash flows arising from operating activities is a key indicator of
the extent to which the operations of the entity are funded:
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(a) by way of taxes (directly and indirectly); and
(b) from the recipients of goods and services provided by the entity.
The disclosure of the amount of net cash flows from operating activities also assists
in identifying the extent to which operations of the entity generate cash that can be
deplo yed to repay obligations, pay a dividend/distribution to its owner and
make new investments without recourse to external sources of financing. The
consolidated whole-of-government operating cash flows provide an indication of
the extent to which a government has financed its current activities through taxation
and charges. Information about the specific components of historical operating cash
flows is useful, in conjunction with other information, in forecasting future operating
cash flows.
8. Cash flows from operating activities are primarily derived from the principal cash-
generating activities o f the entity. Examples o f cash flows fro m operating activities
are:
(a) cash receipts from taxes, levies and fines;
(b) cash receipts from charges for goods and services provided by the entity;
(c) cash receipts from grants, or transfers and other appropriations or budget
authorizations made by central government or other public sector entities,
including those made for the acquisition of capital assets;
(d) cash receipts from royalties, fees and commissions;
(e) cash payments to other public sector entit ies to finance their operations (not
including loans or equity injections);
(f) cash payments to suppliers for goods and services; (g) cash payments to and on
behalf of employees;
(h) cash receipts and cash payments of a public sector insurance entity for
premiums and claims, annuities and other policy benefits;
(i) cash payments o f local propert y taxes or income taxes (where appropriate)
in relation to operating activities;
(j) cash receipts and payments from contracts held for dealing or trading
purposes;
(k) cash receipts or payments from discontinuing operations; and
(l) cash receipts or payments in relation to litigation settlements.
9. An ent ity may hold securities and loans for dealing or trading purposes, in which
case they are similar to inventory acquired specifically for resale.
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Therefore, cash flows arising from the purchase and sale of dealing or trading
securities are classified as operating activities. Similarly, cash advances and loans
made by public financial institutions are usually classified as operating activities since
they relate to the main cash-generating activity of that entity.
10. In some situations, governments or other public sector entities will appropriate or
authorize funds to entities to finance the operations of the entity, and no clear dist
inction is made for the disposition of those funds between current activities, capital
works and contributed capital. Where an entity is unable to separately identify
appropriations or budget authorizations as current activit ies, capital works
(operating activit ies) and co ntributed capital (investing activities), IPSAS 2 explains
that the entity should classify the appropriation or budget authorization as cash flows
from operations, and disclose this in the notes to the statement of cash flows.
Investing Activities
11. The separate disclosure of cash flows ar ising fro m investing act ivit ies identifies
the extent to which cash outflows have been made for resources which are intended
to contribut e to the entity's fut ure service deliver y. Examples of cash flows arising
from investing activities are:
(a) cash payments to acquire property, plant and equipment, intangibles and other
long-term assets. These payments include those relating to capitalized
development costs and self-constructed property, plant and equipment;
(b) cash receipts from sales of property, plant and equipment, intangibles and other
long-term assets;
(c) cash payments to acquire equity or debt instruments of other entities and
interests in joint ventures (other than payments for those instruments
considered to be cash equivalents or those held for dealing or trading
purposes);
(d) cash receipts from sales of equity or debt instruments of ot her entities and
interests in joint ventures (other than receipts for those instruments considered
to be cash equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to other parties (other than advances and loans
made by a public financial institution);
(f) cash receipts from the repayment of advances and loans made to other parties
(other than advances and loans of a public financial institution);
(g) cash payments for futures contracts, forward contracts, option contracts and
swap contracts except when the contracts are held for dealing or trading
purposes, or the payments are classified as financing activities; and
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(h) cash receipt s from fut ures contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or trading
purposes, or the receipts are classified as financing activities.
When a contract is designated as a hedge of an identifiable position, the cash flows
of the contract are classified in the same manner as the cash flows of the position
being hedged.
Financing Activities
12. The separate disclosure of cash flows arising from financing activities is useful in
predicting claims on future cash flows by providers of capital to the entity. Examples
of cash flows arising from financing activities are:
(a) cash proceeds fro m issuing debentures, loans, notes, bonds, mortgages and
other short or long-term borrowings;
(b) cash repayments of amounts borrowed;
(c) cash payments by a lessee for the reduction of the outstanding liability
relating to a finance lease; and
(d) cash receipts and payments relating to the issue of and redemption of currency.
Interest and Dividends
13. IPSAS 2 requires the separate disclosure of cash flows fro m interest and dividends
received and paid. IPSAS 2 also requires that where such disclosures are made
they should be classified in a consistent manner from period to period as either
operating, investing or financing activities.
14. The total amounts of interest and dividends paid and received during a period are d
isclosed in the cash flow st atement. Interest pa id and interest and dividends
received are usually classified as operating cash flows for a public financial
institution. However, there is no consensus on the classificat ion of the cash flows
associated with interest and dividends received and paid for other entities. Interest
and dividends paid and interest and dividends received may be classified as
operating cash flows. Alternatively, interest and dividends paid and interest and
dividends received may be classified as financing cash flows and investing cash
flows respectively, because they are costs of obtaining financial resources or returns
on investments.
Reporting Major Classes of Receipts and Payments
15. The sub-classification of receipts depends upon the size, nature and function of the a
mounts invo lved. Depending upon the nature o f the e ntit y, the following sub-
classifications may be appropriate:
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(a) receipts fro m taxation (these may be further sub-classified into types of
taxes);
(b) receipts from fees, fines, penalties and licenses;
(c) receipts from exchange transactions including receipts from the sale o f goo ds
and services and user charges (where t hese are classified as exchange
transactions);
(d) receipts from grants, transfers, or budget appropriations (possibly classified by
source); and
(e) receipts from interest and dividends.
16. Payment items are sub-classified in order to highlight the costs and cost recoveries
of particular programs, activities or other relevant segments of the reporting entity.
Examples of classification of payments by nature and function are included in Part
1 of this Standard.