Dear Fumi,
Thank you for your eleventh message. My comments follow.
Sincerely,
Prof. S. Stiner
s2396055@slb.cgu.ac.jp wrote:
>
> Dear Dr. M. Susan Stiner
>
> Hello, it's good to see you again. How's it going?
It has been going way too busily for me, Fumi. However, this week will
be better. We have Fall Break. That means a week of no undergraduate
classes. I don't know who is happier- me or the students. Maybe I can
catch up on stuff that has been let go far too long.
How's it going with you?
> In Japan, we still have hot and humid days. It's a bit unusual.
> Actually, I don't like hotter temperature.
My condolences. We are having beautiful days now. The trees have
finally begun to turn. Fall will not be as beautiful as usual. The
summer was so dry and hot that many leaves have fallen already. The
ones left are quickly going to brown and bypassing the pretty colors.
But there is some red and gold on the trees. And the air is cooler! I
hope you get cooler temps soon.
> In my homework,
> (Answers)
>
> 1.Because American investors respond to changes in cash flows.
> Stockholders study cash flows to predict dividends.
> Cash flow information helps creditors decide if they will be repaid.
> U.S. creditors will not lend funds if they believe they cannot recover
> them.
>
> 2.Statements made under the direct and indirect methods are more alike
> than they are different.
> The main difference between the indirect and direct method of developing
> caash flow statements is in operating activities.
> Indirect method starts with Net Income on the Income Statement.
> Cash transactions omitted from income(such as depreciation and amortization,
> exchange losses, net, investing and financing losses, net)are included.
> Non-cash transactions included in income(trade receivable, inventories, etc)
> are removed. This is a "reconciliation" to Net Income.
> As no reconciliation necessary, most companies use its method.
> This method is not recommended by FASB.
> Direct method indepently analyzes each balance sheet account for changes
> caused by each transactions. They are displayed on a gross basis.
> As companies must show a reconciliation to Net Income in the footnotes if
> they use this method, most companies do not use its method.
> The amount of cash provided by or used by operating activities is the same
> no matter which method is used.
Correct. Isn't it strange that FASB would recommend a certain procedure
and then make the companies work harder to use it? The idea is that the
direct method provides more useful info to shareholders. But most
shareholders look at the income statement first. Since the cash flow
statement operating activity section and the income statement are
talking about the same thing (one is accrual basis and one is cash
basis), I guess FASB decided shareholders were too dumb to figure out
the differences themselves. In my opinion, FASB should require the
direct method, and omit the reconciliation. However, FASB isn't asking
me!
> 3.The following are quoted from webpages you mentioned last week.
> In Japan, funds flow statement, which disclose fund information, are understood
> as information outside of financial stataments. "Cash flow statement", which will
> replace funds flow statements, shoud be understood as one of financial statements,
> because they disclose important information about whole business activities as do
> balance sheets and income statements.
> Of note, from an international perspective, cash flow statements are placed as one
> of financial statements.
> Consolidated cash flow statements(or parent-only cash flow statements for companies
> that do not prepare consolidated financial statements) should be implemented to
> require for fiscal years beginning on or after April 1, 1999.
> Interim consolidated cash flow statements(or interim parent-only cash flow statements
> for companies that do not prepare consolidated financial statements) should be
> implemented to require for interim periods beginning on or after April 1, 2000.
>
> Thank you very much for reading them all.
>
> This homework was a little hard work.
> I really look forward to your next message, thank you.
You did an excellent job, Fumi. You got the right info from the article
I suggested on the Japanese treatment of cash flow information. I think
the next assignment will be much easier.
The next lesson is at------------------------------. We will talk
about the role of the CPA today. We will also talk about the largest
professional organization for CPAs.
>
>
> Best wishes,
> Fumi
--
Prof. M. Susan Stiner