Can anyone clarify the following:
For the purpose of determination of cash losses under CARO 2003 para 4(x) the institute has given in its explanation to determine the cash loss, which is furnished as under:
The auditor is also required to report whether the company has incurred cash losses during the period covered by the report and in the financial year immediately preceding the period covered by the report. In order to determine the figure of cash loss for the financial year, the loss shown by the profit and loss account is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future cash receipts or payments. These adjustments would include:
(i) changes during the period in inventories and operating receivables and payables;
(ii) non-cash items such as depreciation, provisions, deferred taxes, and unrealised foreign exchange gains and losses; and
(iii) changes during the period in cash and cash equivalents
It is not clear as to whether only “changes during the period in cash and cash equivalents” must be considered for the purpose of cash losses.
In the above explanation it is said to adjust Working capital changes and non cash items, which shall tantamount to cash flow from operating activities, if we also consider changes during the period of in cash and cash equivalents, we are indirectly considering investing and financing activities folded into it. Hence is it fine, as to whether changes in cash and cash equivalents is a determinant to indicate Cash losses for the purpose of CARO reporting. Kindly let me know your views.
Thanks
CAclubindia
