SEC Chief Accountant Reminds Issuers to Accurately Report Cash Flows

SEC Chief Accountant Paul Munter reminded issuers, preparers and auditors of their responsibilities to provide transparent, high-quality cash flow information for the protection of investors.

In a published statement, Mr. Munter urged issuers to devote rigorous attention to the statement of cash flows, noting that "a significant majority of . . . restatements represent prior period errors corrected in the current period comparative financial statements." He reminded "issuers, auditors, and others of the importance of performing an objective analysis from the perspective of a reasonable investor" when evaluating the materiality of the financial statement, "including the significance of the statement of cash flows to the investor's complete understanding of the financial condition of the company." He detailed the need for accurate classification of cash flows as "operating, investing, or financing activities," emphasizing that accuracy "is paramount to investors understanding the nature of the issuer's activities." He also stressed the importance of early identification of disclosure challenges. Further, Mr. Munter recognized auditing challenges related to accurate cash flow reporting, stating that, "we expect auditors to design and implement audit procedures that are specifically responsive to those risks in the statement of cash flows, rather than simply reconciling reported cash flows to the balance sheet or income statement."