ASBE No. 31
Active
Cash Flow Statements
Cash Flow Statements is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Presenting cash inflows and outflows by activity
ASBE No. 31 governs the PREPARATION of the CASH FLOW STATEMENT – CLASSIFYING an ENTERPRISE'S cash INFLOWS and OUTFLOWS into OPERATING, INVESTING, and FINANCING activities. WHILE the OVERALL structure is BROADLY converged with IAS 7, THIS Standard's TREATMENT of the DIRECT/indirect method CHOICE is a GENUINELY notable, PRACTICAL divergence (Section 4).
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Scope and Cash Equivalents
Short-term, highly liquid investments
CASH EQUIVALENTS are SHORT-term, HIGHLY liquid INVESTMENTS readily CONVERTIBLE to KNOWN amounts of CASH, subject to an INSIGNIFICANT risk of CHANGES in value – CONSISTENT with IAS 7'S own definition internationally.
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Three Activity Classifications
Operating, investing, and financing
CategoryDescription
Operating activitiesPRINCIPAL revenue-PRODUCING activities and OTHER activities that are NOT investing or FINANCING
Investing activitiesACQUISITION and DISPOSAL of LONG-term assets and OTHER investments not CONSIDERED cash EQUIVALENTS
Financing activitiesActivities CHANGING the SIZE and COMPOSITION of the ENTERPRISE'S owners' EQUITY and BORROWINGS
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THE KEY DIVERGENCE – Direct Method Required, Plus a Mandatory Reconciliation
Unlike IAS 7's free choice
UNLIKE IAS 7, WHICH permits a FREE choice BETWEEN the DIRECT method (presenting MAJOR classes of GROSS cash receipts/payments) and the INDIRECT method (STARTING from net PROFIT, adjusting for NON-cash items), ASBE No. 31 REQUIRES the DIRECT method for the PRIMARY Cash Flow STATEMENT presentation – BUT ALSO requires a SUPPLEMENTARY reconciliation from NET profit to NET cash flow FROM operating activities (an INDIRECT-method-STYLE schedule) DISCLOSED separately WITHIN the notes.
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Why Both Methods Are Effectively Required in Practice
Combining the transparency of gross cash flows with a profit reconciliation
THIS dual REQUIREMENT reflects a DELIBERATE POLICY choice – the DIRECT method PROVIDES readers with GREATER transparency about the ACTUAL gross CASH movements UNDERLYING operating ACTIVITIES, WHILE the SUPPLEMENTARY indirect-METHOD reconciliation HELPS readers UNDERSTAND the RELATIONSHIP between REPORTED net PROFIT and ACTUAL cash generated – a GENUINELY more COMPREHENSIVE practical REQUIREMENT than IAS 7'S own SINGLE-method choice.
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Classifying Interest and Dividends
A more prescriptive classification than IAS 7's flexible approach
FOR most NON-financial enterprises, INTEREST and DIVIDENDS RECEIVED are CLASSIFIED as INVESTING activities, WHILE INTEREST and DIVIDENDS PAID are CLASSIFIED as FINANCING activities – a MORE PRESCRIPTIVE approach than IAS 7, WHICH permits GREATER flexibility (interest/DIVIDENDS received MAY be classified as EITHER operating OR investing; interest/DIVIDENDS paid as EITHER operating OR financing).
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Non-Cash Transactions
Excluded from the statement, disclosed separately
SIGNIFICANT investing and FINANCING transactions that do NOT involve CASH or cash EQUIVALENTS (e.g. a DEBT-to-equity swap – see the COMPANION ASBE No. 12 poster) are EXCLUDED from the CASH FLOW Statement itself, but DISCLOSED SEPARATELY elsewhere in the FINANCIAL statements.
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Worked Example – Direct Method Operating Cash Flows
Presenting gross cash receipts and payments
Example: Operating activities under the direct method
A company receives RMB 500,000,000 cash from customers and pays RMB 320,000,000 cash to suppliers and employees during the year.
The PRIMARY Cash Flow Statement presents these as SEPARATE GROSS line ITEMS: "cash RECEIVED from customers RMB 500,000,000" and "cash PAID to suppliers and EMPLOYEES RMB 320,000,000," yielding NET cash from OPERATING activities of RMB 180,000,000.
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Worked Example – the Supplementary Indirect-Method Reconciliation
Bridging net profit to operating cash flow
Example: The mandatory notes-based reconciliation
Continuing the prior example, the company's net profit for the year is RMB 150,000,000, with RMB 25,000,000 of depreciation and a RMB 5,000,000 increase in working capital requirements.
The SUPPLEMENTARY note RECONCILES: net PROFIT RMB 150,000,000 + depreciation RMB 25,000,000 − working CAPITAL increase RMB 5,000,000 = RMB 170,000,000 (approximating the SAME net operating CASH flow figure, SUBJECT to rounding and OTHER reconciling items) – REQUIRED IN ADDITION to the DIRECT method statement ITSELF.
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Disclosure Requirements
What ASBE No. 31 requires
Cash flows classified by operating, investing, and financing activities, using the direct methodA supplementary reconciliation from net profit to net cash flow from operating activitiesSignificant non-cash investing and financing transactions
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Classifying a specific cash flow among operating, investing, or financing activities
SIGNIFICANT ESTIMATES
Generally minimal – this is primarily a classification and presentation standard
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Relationship to IAS 7
Comparison – ASBE 31 vs IAS 7
FeatureASBE 31IAS 7
Method for primary statementDirect method REQUIREDFree choice between direct and indirect
Interest/dividend classificationPrescriptive (investing/financing)Flexible policy choice
TWO genuinely NOTABLE practical DIVERGENCES – the MANDATORY direct method (WITH a SUPPLEMENTARY reconciliation) and the MORE prescriptive INTEREST/dividend classification.
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Statement Mapping
Where every cash flow event lands
EventStatement(s) affectedNotes
Cash inflows/outflowsCFSClassified by operating, investing, or financing activity
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 30Presentation of Financial Statements – supplies the general presentation framework this Standard's cash flow requirements sit within
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Quick-Reference Glossary
Direct method
A Cash Flow Statement presentation showing major classes of gross cash receipts and payments, mandatory for ASBE's primary statement.
Indirect method
A reconciliation starting from net profit, adjusting for non-cash items, required as a supplementary note disclosure under ASBE.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 31 Cash Flow Statements issued
Operative for periods beginning on or after 1 February 2007