It has been argued that International Accounting Standard (IAS) 7 cash flow statements or reports do not fully meet the needs of users of accounting information. Below are some of the main weaknesses or problems associated with the cash flow statement:
- Lack of clarity
- Future cash flows are ignored
- It allows more than one alternative treatment
Lack of clarity
The information on the cash flow statement lacks clarity, and this makes comparisons between two organisations difficult to make. One major weakness of a cash flow statement is that it does not distinguish or differentiate between discretionary and mandatory cash flows. The cash flow statement only shows the main sources and applications of cash by the business. This information does not fully reveal the true solvency position of a business.