Where the entity uses the direct method a note to the accounts reconciling cash flows from operating activities to net profit is required because:
A)Complex calculations are required to convert cash-based revenues.
B)Items such as depreciation are only recorded in a cash system and not an accrual system.
C)There is likely to be a disparity between cash flows from operations under IAS 7 and the profits reported in the statement of comprehensive income.
D)The direct method is required under IAS 7.

Question

Quizplus · Accepted Answer

The reconciling note is required because there is likely to be a disparity between cash flows from operations under IAS 7 and the profits reported in the statement of comprehensive income when using the direct method. This is because the direct method does not account for some adjustments that are included in the accrual-based net income.

Where the Entity Uses the Direct Method a Note to the Accounts