FDs' calls met with revised FRS1 'pure cash' definition

The ASB has responded to calls from finance directors and treasurers, with the release of a fine-tuned cash flow statement under a revised FRS1.

The new standard replaces the unpopular ‘cash and cash equivalents’, with a ‘pure cash’ definition, represented by cash-in-hand and at the bank. The old standard defined cash equivalents as investments which, when acquired, were within three months of maturing.

Allan Cook, technical director at the ASB, said: ‘Treasurers don’t confine their horizons to three-month investments, so many treasury activities were falling into the “investing activity” category.’ Under the new standard, companies’ treasury investments fall into a new section called ‘management of liquid resources’.

FRS1 (Revised) also introduces the requirement to link the period’s cash movement to changes in the company’s net debt figure, which essentially means borrowing less cash. Argyll Group, the giant grocery retailer, is among the companies that voluntarily reconcile their primary cash flow statement to net debt.

Nigel Dealy, director UK accounting for Price Waterhouse, said: ‘FDs in the FTSE-100 have been asking for this. Changes in cashflow alone don’t show how a company’s net debt position has changed and this is a key indicator for analysts.’

The revised standard becomes mandatory from 23 March next year.