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Why is it important to disclose certain non cash investing and financing transactions, such as exchanging...

Why is it important to disclose certain non cash investing and financing transactions, such as exchanging common stock for land?

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Answer #1

The cash flows statements contain only all the cash transactions related to the operating, financing and investing activities. These activities affect all the cash and cash equivalents in the organisations.

Sometimes companies carry out certain non cash transactions as well. These transactions have the potential of a significant impact on the stock price and the investors are supposed to known about it. The company has to make disclosures about such non-financial transactions happening within the organisation.

The IFRS and US GAAP requires that company disclose such transactions as footnotes in the bottom of the financial statements. Not disclosing such transactions will not be a fair and transparent representation of financial statements by the organisation for the investors.

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