Accounting research cites involves citing investment information and is vital in creating new awareness and knowledge. Cash flows enshrine money and its equivalent transferred in and out of an investment or business. Dechow (2014) explained that positive cash flows explain a company’s ability to continue making value for investor’s stake and shows an increase in liquid assets.
Applied accounting research has six steps that include; identifying industry’s economic environment, reviewing strategies, determining financial statements quality, assessing risks, preparing forecast for financial statements and analyzing a firm’s value (Sloan, 2010) .
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Cash flows rules state that information should be; relevant, comparable, clear, concise and representationally faithful (Dechow, 2014) . In addition, accounting and cash flow statements should enhance and promote efficient and robust capital markets through; transparency, high quality standards, better financing decisions, increased investor confidence and better information.
Financial reporting through cash flows seeks to achieve various objectives such as; assessing amounts in a company and understanding liquidity state of a company through reporting using operating, financial and investing cash flows (Dechow, 2014) . Statement of changes in equity and cash flow prepares and discloses material subsequent events related to; dividends payment to shareholders, changes in accounting information, losses and gains secured directly from the business, increase or decrease in share capital reserves and loss or profit made in a particular accounting period.
The accounting rules and treatment would be undertaken through classifying statement of changes in equity and cash flows into; operating, financing and investing activities (Sloan, 2010) . Analyzing statements assist business owners to assess impacts of operating and investing activities on a company.
Regarding questions from auditor’s notes, a statement of cash flows and changes in owners’ equity was prepared to determine and reveal the financial statements. In addition, several events occurred in 20X2 that were vital in disclosing the financial statements. Some of the material subsequent events included; changes in share capital, variations in revaluation reserve and other gains and losses. Subsequent material events disclosed in statement of cash flows include; changes in balance sheet, cash equivalents, cash flows from financing and investing activities
References
Dechow, P. M. (2014). Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of accounting and economics , 18 (1), 3-42.
Sloan, R. G. (2010). Do stock prices fully reflect information in accruals and cash flows about future earnings? Accounting review , 289-315.
