Cash-Flow Reporting Practices for Customer-Related Notes Receivable: An Update

Abstract

In our April 2004 report, "Cash-Flow Reporting Practices for Customer-Related Notes Receivable," we expressed the view that firms who reported as investing cash flow changes in customer-related notes receivable, including sales-type lease receivables, were reporting in a way that appeared to be inconsistent with generally accepted accounting principles. Recently, the Securities and Exchange Commission sent a letter to the CFOs of numerous firms who were following such practices. In the letter the SEC indicated that these firms were violating GAAP, and it called for them to begin reporting such cash-flow activities as operating cash flow. This update reviews the points raised in our original report and highlights the names of several affected firms who we think could show material changes, including both sizable increases and reductions, in operating cash flow.