Spotting the OCI Error - Ind AS 7

This document examines a company's compliance with Ind AS 7, Statement of Cash Flows, specifically regarding the indirect method used to calculate cash flows from operating activities.
The primary observation is that the company incorrectly adjusted its Net Profit after tax for the "Remeasurement of Defined benefit plans". According to Paragraph 20 of Ind AS 7, the indirect method involves adjusting profit or loss for non-cash items, changes in working capital, and items associated with investing or financing activities.
The sources highlight a technical error in the company's approach: because the remeasurement of defined benefit plans is reported in Other Comprehensive Income (OCI), it is not included in the "Net Profit after tax" figure to begin with. Therefore, profit after tax should not be adjusted for items already residing in OCI. Consequently, the document concludes that the company failed to comply with the requirements of Ind AS 7.

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