SEC Chief Accountant Discusses Importance of Statement of Cash Flows to Investors

SEC Chief Accountant Paul Munter has released a statement addressing the importance of the statement of cash flows to providing investors with high-quality financial information. Mr. Munter notes that the staff has “observed that preparers and auditors may not always apply the same rigor and attention to the statement of cash flows as they do to other financial statements.” Accordingly, he reminds preparers and auditors of their professional responsibilities related to the statement of cash flows. Key takeaways from Mr. Munter’s statement include the following:

• To mitigate the risk of restatements, it is critical for issuers and auditors to perform an objective materiality analysis of “both the financial statement and ICFR impacts [footnote omitted] of an error in the statement of cash flows, including the significance of the statement of cash flows to the investor’s complete understanding of the financial condition of the company.”
• With respect to disclosures related to the statement of cash flows, issuers should “focus on investor needs when determining how best to communicate relevant cash and noncash information.”
• It is essential to have “appropriate risk assessment processes and controls in place to facilitate risk identification, analysis, and response related to the preparation and presentation of the statement of cash flows.”

The SEC staff expects “auditors to design and implement audit procedures that are specifically responsive to [risks of material misstatement] in the statement of cash flows, rather than simply reconciling reported cash flows to the balance sheet or income statement.”