On December 4, 2023, Paul Munter, the SEC’s Chief Accountant, issued a statement titled “The Statement of Cash Flows: Improving the Quality of Cash Flow Information Provided to Investors.”  In the statement, Mr. Munter commented that OCA has observed that issuers and auditors have not applied the same rigor to the statement of cash flows as they do to other financial statements.  He noted this is evidenced by the fact that the statement of cash flows has consistently been a leading area of restatements, and, specifically, “little r” restatements. 

Mr. Munter reminded issuers and auditors of the importance of an objective analysis from the perspective of a reasonable investor when evaluating the materiality of financial statements and ICFR impacts of an error in the statement of cash flows.  Specifically, he noted that OCA has, in certain instances, been presented with analyses that conclude an error is not material because it was an error in classification only, and that OCA has not found such analyses persuasive since classification is the foundation of the statement of cash flows.

Noting that the risks of material misstatements related to the statement of cash flows are distinct from the risks associated with other financial statements, Mr. Munter expressed an expectation that auditors design and implement audit procedures to address the unique risks associated with the statement of cash flows.  He further reminded auditors that it would not be appropriate for an auditor to set a materiality level for the statement of cash flows that exceeds the materiality level for the financial statements as a whole.

Mr. Munter’s statement is available here.