Cash pooling

[Auditsux]

So we are auditing a subsidiary company which transfers all of its cash to a cash pooling account at year end which is controlled by its parent company and is recharged the interest. How should this be presented on balance sheet? As an other receivable or as a loan or maybe something else?? Also how should it be presented in the CFS and in which section?? Couldn't find much guidance anywhere.

Thank you in advance everyone!!

[Leo]

In the individual accounts of the sub, it would be shown as an intercompany receivable/payable depending on the cash balance that the sub has with its parent. Whether there is interest and how much depends on the cash pooling conventions. (every group should have a cash pooling agreement).

I haven't seen any individual FS doing a CFS but I might be wrong.

[Auditsux]

Hey thanks for your reply, appreciate it!!

We have to prepare a separate set of FS including a CFS for the sub for stat purposes in my country. Any idea how would the cash pooling would be presented in both sub's and parent's CFS(for educational purposes)?

[Leo]

I have never seen a stat CFS with cash pooling in practice, so I cannot pronounce. Instinctively, I can think of two approaches.

Approach 1: Consider the intercompany balance you've got with your parent as a bank balance. And everything else being the same than a normal CFS. So your cash flow is the difference between Intercompany with parent opening and closing. (because you net cash flow is zero, so, you need to mention this in the CFS by adding an extra line at the bottom)
Approach 2: Variation in intercompany balance goes into a single line in CFS financing activities, and net cash flow is zero.

[Auditsux]

Thank you!! Approach 2 sounds reasonable and something I was considering as well. Im just unsure in which line to include it in financing activities or how to name it? I have seen it under borrowings once as an outflow but im not sure if its correct.

Anyone else who happens to know please feel free to comment!!

[DJP]

This may require a few discussions between management and auditors, but you can also make the case that the balances in the cash pool are a cash equivalent, as it meets the definition in IAS 7.

If you conclude that it does not meet the definition of a cash equivalent, then these are I/C balances, as already noted. Deposits in the cash pool should be recorded as investing activities, and overdrafts as financing activities. I am assuming that in your scenario we are mostly talking about deposits and withdrawals, in which case you should classify the net flows in investing activities.

[Auditsux]

This may require a few discussions between management and auditors, but you can also make the case that the balances in the cash pool are a cash equivalent, as it meets the definition in IAS 7.

If you conclude that it does not meet the definition of a cash equivalent, then these are I/C balances, as already noted. Deposits in the cash pool should be recorded as investing activities, and overdrafts as financing activities. I am assuming that in your scenario we are mostly talking about deposits and withdrawals, in which case you should classify the net flows in investing activities.

Hey thanks for your input! Could you please clarify when the balance would be a cash equivalent and when not as I am trying to clear it up? Reading the standard didn't really help.


It basically relates to deposits as you said, sub transfers to cash pooling account which is controlled by the parent company and I need to prepare a CFS from the sub's side. In which line would you include it in investing activities? Or how could I name it if it should be a separate line??

[DJP]

If you meet all these criteria, it is a cash equivalent:

- short-term nature (i.e. readily convertible to a known amount of cash)
- subject to insignificant changes in value
- the purpose is to meet short-term cash commitments (i.e. it is used for cash management purposes rather than for investment purposes)

If you conclude that it is a cash equivalent, then you don't have to show any flows in the SCF.

If you conclude that it is not a cash equivalent, then it is an intra-group receivable and the deposits should be recorded in investing activities. IFRS does not prescribe the names for sub-line items. This is up to you.

[Auditsux]

Noted, thank you so much!

[Marek Muc]

Orange's Polish subsidiary classifies such funds as cash equivalents:

https://www.orange-ir.pl/wp-content/upl ... df#page=48

[DJP]

Good reference, Marek. Thanks!!