The Role and Effectiveness of the Statement of Cash Flows as a Decision Making Tool in Namibian Companies

Abstract

The role of the statement of cash flows is to show the sources and overall amount of cash which was available to the firm in the year, and how that cash has been useful. The statement of comprehensive income and the statement of financial position place little emphasis on cash, and yet companies go out of business every day because of shortage of readily available cash.

This research report aimed to study and analyse the role and effectiveness of the statement of cash flows as a decision making tool in Namibian companies, in the recent wake of international accounting scandals where firms were reporting on good earnings and yet they were bankrupt.

In order to sufficiently tackle these issues the research sought to address the following questions;

To what extent do companies in Namibia comply with statement of cash flows requirements as set out by GAAP requirements?

What are the purposes and relevance of statements of cash flows to Namibian organisations?

Are the statements of cash flows actually used for decision making by users of AFS?

Does the use of the statement of cash flows as a decision making tool, give a competitive advantage over those who prepare them for compliance purposes only?

The findings of this study revealed that little emphasis is placed on the statement of cash flows as a decision making tool by Namibian companies, with emphasis mainly focused on the statement of comprehensive income and the statement of financial position.

The study made recommendations which draw attention to the fact that for Namibian organisations to derive a full benefit out of the Annual Financial Statements, the statement of cash flows needs to be analysed in conjunction with the statement of comprehensive income and the statement of financial position, to derive the full benefit thereof.