BC47 The IASB decided to require all entities to use the same starting point for the indirect method because diversity in practice reduces comparability between entities, and so makes analysis by users of financial statements more difficult. The IASB decided to use operating profit or loss, a subtotal in the statement of profit or loss that is required by IFRS 18, as the starting point because:

(a) an entity using operating profit or loss needs to present fewer adjustments to the starting point, which simplifies the presentation of the operating cash flows category. Fewer adjustments are needed because, compared to profit or loss, operating profit or loss includes fewer items of income and expenses for which the cash effects are classified as investing or financing cash flows. For example, operating profit or loss does not include the share of profit or loss of associates and joint ventures accounted for using the equity method.

(b) the difference between cash flows from operating activities and operating profit or loss provides a measure of operating accruals. Some users of financial statements find such a measure useful because it helps them understand how operating profit or loss is converted into cash flows. The IASB acknowledged that the cash conversion analysis may not be as effective given that the operating category as defined in IFRS 18 differs in composition from operating activities as defined in IAS 7.