Inconsistencies and ambiguities in cash flow statements under FASB Statement No. 95

Under FASB Statement 95 (SFAS 95), cash receipts and cash payments are classified in the cash flow statement as resulting from investing, financing, or operating activities. The distinctions among these activities under SFAS 95 are examined and compared with similar distinctions in the finance literature. It is demonstrated that the 3-way classification and the ambiguous presentation of 3rd-party financing transactions under SFAS 95 results in reporting similar cash flows differently and different cash flows similarly, just the opposite of the desired characteristic of financial reporting. The required classification of interest and dividend collections and interest and income tax payments as operating cash flows is shown to result in contaminating operating cash flow with certain effects of investing and financing activities, and may result in a peculiar if not counterintuitive presentation of the retirement of bonded debt originally issued at a discount. It is demonstrated that the disclosure requirements for noncash investing and financing transactions are ambiguous.