Auditing the statement of cash flows

What an auditor should check on a client's statement of cash flows, from the cash reconciliation to balancing figures and lines someone typed in by hand.

By Achekam · 11 October 2026 · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

The statement of cash flows is often the last statement prepared and the first one skimmed at review. It balances, the closing cash agrees to the bank, and everyone moves on. Yet it is the statement most likely to contain a figure nobody can explain, because when the movements will not reconcile, the easiest fix is to adjust a line until they do.

Lenders and investors in South Africa, Nigeria and Kenya read the cash flow closely, often more closely than the income statement. It deserves an audit approach of its own, not a glance. This article sets out what to test and why, with a tie-out checklist at the end.

Start with cash and cash equivalents

IAS 7, as the IFRS Foundation summarises it, requires an entity to disclose the components of cash and cash equivalents and to reconcile the amounts in the statement of cash flows to the equivalent items in the statement of financial position.

So the first test is simple and non-negotiable:

agree opening and closing cash and cash equivalents to the statements of financial position for both years;
check the components, such as bank accounts, cash on hand, short-term deposits and any bank overdraft included, against the client's definition in its accounting policy;
confirm that the definition is applied consistently with the prior year;
agree foreign currency balances and the effect of exchange rate changes on cash, where the client has them.

If cash does not reconcile, nothing else on the statement can be relied on.

Testing the indirect method adjustments

The IFRS Foundation explains that operating cash flows are reported either by the direct method, showing major classes of gross receipts and payments, or by the indirect method, which adjusts profit or loss for non-cash items, deferrals and accruals, and items that belong to investing or financing. Most small and mid-sized entities use the indirect method.

ACCA's article on cash flow statements describes the main adjustments. Depreciation and losses on disposal of property, plant and equipment are added back; non-cash income such as gains on disposal is deducted. Increases in inventories and trade receivables are deducted and decreases added back, with the opposite treatment for trade payables.

For each adjustment, the audit test is the same: agree it to an audited figure elsewhere in the statements or the notes.

Depreciation and amortisation to the asset notes.
Profit or loss on disposal to the disposals working.
Movements in inventory, receivables and payables to the opening and closing balances, adjusted for any non-cash or non-operating items within them.
Finance costs and investment income to the income statement, where they are moved to other sections.

Balancing figures: tax, assets and dividends

ACCA explains that cash flows such as tax paid, payments for property, plant and equipment and dividends paid are usually calculated as the balancing figure when the opening balance is reconciled to the closing balance using the non-cash movements.

That makes them easy to prepare and easy to get wrong. A balancing figure absorbs any error in the opening balance, the closing balance or the non-cash items. Test it from the other direction:

Tax paid. Agree to payments shown on the tax authority's statement of account (SARS, NRS or KRA) or the bank statement.
Purchases of property, plant and equipment. Agree to additions in the asset note, less non-cash additions such as assets acquired on finance or by exchange.
Dividends paid. Agree to the dividends declared, adjusted for amounts still payable, and to the bank.

A balancing figure that does not agree to an independent source is a misstatement in waiting.

Figures typed by hand in Achekam

In Achekam, the cash flow statement's current-year column is worked out from the change in balances. Staff can type their own figure for any line, and a typed figure then takes priority over the calculation. Comparatives can come from a person's figures, from last year's issued statements or from a prior-year set that a person reviews.

That design is useful, because some lines need judgement the calculation cannot make. It also tells the auditor exactly where to look: every typed figure has replaced the calculated one, so each needs support. Ask the preparer for a list of typed lines and the working behind each. Our article on the comparatives and the cash flow column explains how those choices are made.

Automated review findings as prompts

Staff can run an automated review of a draft in Achekam, which lists findings for a person to accept, resolve or dismiss. It is advice only and does not block signing. Separately, the Validation & Math Engine runs fixed, non-AI checks such as double entry and note ties.

Use both as prompts for the auditor's own work, not as evidence. A check that the cash flow totals add up does not show that tax paid agrees to the tax authority's statement. A dismissed finding should carry a reason the reviewer can read.

A tie-out checklist

Opening and closing cash agree to both statements of financial position.
Components of cash and cash equivalents disclosed and consistent with policy.
Profit before tax agrees to the income statement.
Each non-cash adjustment agrees to a note or working.
Working capital movements agree to balances, adjusted for non-operating items.
Tax paid, asset purchases and dividends paid agree to independent sources.
Proceeds from disposals agree to the disposals working and the bank.
Loans raised and repaid agree to the borrowings note and confirmations.
Classification between operating, investing and financing follows the policy; see cash flow classification.
Every typed figure has support, and comparatives agree to last year's issued statements.

The IFRS Foundation's summary of IAS 7 sets out the methods for operating cash flows and the reconciliation and disclosure requirements, and is the reference to check against the client's presentation.

On your next file, give the cash flow statement its own working paper with the checklist above, rather than a tick on the statements. It is the review step most often skipped and among the quickest to complete.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.