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The ISA has approved the publication of a regulation requiring companies to disclose anticipated cash flow for covering financial liabilities


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The ISA has approved the publication of a regulation requiring publicly traded companies to disclose the financial sources by means of which they will disburse their liabilities during the two year period following the publication of their financial statements (periodic or quarterly).  
The regulation will require the board of directors to follow up and report on the warning signs regarding the company’s ability to disburse its financial liabilities. The regulation stipulates four warning signs: deficit in the equity capital, negative working capital, continuous negative cash flow from ongoing operations and continuous financial difficulties pointed out by the company’s accountants. 
In light of the worldwide credit crisis and the apprehension regarding the companies’ capacity to pay out the dept to their bond’ holders, the ISA has required ten’s of companies that, issued bonds to the public, to report on the financial sources from which they are about to disburse their liabilities, including interest, to the aforesaid bond’ holders. Certain companies have already published the required clarifications.    
The new regulation requires the board of directors, of all reporting companies to which one of the abovementioned signs apply, to hold a discussion on the subject. The discussion has to be based on detailed data regarding the sources of financing and projected uses for cash flow for the period of two years. The board will have to decide whether, in light of the data at hand and the predicted cash flow, the company can comply with its existing and expected obligations for the upcoming two years and to pay its dept on the designated date.    
A company is entitled not to publish its cash flow forecast and accompanying explanations, providing the board of directors decided that there is no threat of not paying the dept for the period of predicted cash flow. In this case the board shall state this fact in the director’s report, along with description of performed analysis. 
The aforesaid requirement does not diminish the board’s responsibility as far as examining the company’s financial situation is concerned, including examination of compliance with the distribution tests stipulated under the Companies Law, at the time of approving company’s financial statements.  
The board of directors that identified any of the warning signs, within the company, has two options: to publish its opinion stating that the board is reasonably confident that the company will comply with existing and expected liabilities for the period of predicted cash flow, including their explanation to the aforesaid decision; or to publish the predicted cash flow, including explanations.   
The draft of this regulation has been published on the ISA website. Following the comments that will be received regarding the draft, the regulation will be published in its final version and shall go into effect from the date of publication.

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