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Fair-Value Reporting - Cashflow Disclosure

Media advisory
7 August 2002

Fair-Value Reporting And The Benefits Of Cashflow Disclosure

The growing popularity of fair-value reporting, compared with historic-cost reporting, highlights the benefits of providing separate cashflow information, a joint study between The University of Auckland and Lincoln University has found.

The study’s findings were based on the 1999 financial accounts of 160 defined-benefit pension schemes, which are required to report their earnings, assets and liabilities on a fair-value basis as well as presenting cashflow statements.

As such, these schemes present distinctive financial reports compared with other entities, which predominantly report on a historic-cost basis.

The study found that the schemes had negative correlations between their earnings (surpluses) and operating cashflows.

In jurisdictions that allow asset revaluations for manufacturing entities — such as New Zealand, Australia and the UK — any unrealized gains or losses on revaluations are not included in earnings.

However, earnings of defined-benefit pension schemes comprise cash and unrealized changes in values of assets and liabilities.

This suggests that unrealised changes from asset valuations are negatively correlated with cashflows from operations i.e. the lower the cashflows the higher the unrealised change.

Thus, cashflows provide additional information to earnings. However, it could also be argued that if unrealised valuation changes are separately disclosed, there may not be a need to report cashflow statements for such entities.

Free public lecture Fair-value reporting and the benefits of cashflow disclosure
The University of Auckland Department of Accounting and Finance Seminar Series
Speakers Dr Rachel Baskerville, The University of Auckland
Professor Fawzi Laswad, Lincoln University

Details The University of Auckland
Commerce 'C', Room C409
18 Symonds Street
Friday 9 August 2002

Media enquiries Dr Rachel Baskerville
The University of Auckland
Phone (09) 373 7599 ext 5648

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