Capex can have non cash elements and elements that don’t show up on income statements.
1)If a machine is bought on credit, it’s not still affected the cash flow
2)interest on loans taken for the capex can be capitalised, however this will not show up anywhere in cash flow and income statement as it’s many times not repaid until the asset is put to use. So this is not yet hitting the cash flow or the income stmt
In your verification method, I think you are taking the fixed assets table from the annual report and the figure there show as capex or wip, you are trying to arrive at that figure using first the cash flow and then using the income statement. However both these methods will miss to account for all additions
This is an area where discrepancies are difficult to pass audit. Most discrepancies that show financial fraud will be things like office rent being same for 100 staff and then subsequent expansion to 1000 staff.
The audit process doesn’t easily catch these discrepancies as they mostly audit large year to year difference but don’t ask a question like if your revenue has increased 2 times why has your advertising not increased by atleast 20-30%
If the advertising were to increase in like with revenue increase, the auditors will nevertheless question it, they won’t make an effort to add 2 & 2 together
So as investors in my humble opinion our research should be so see discrepancies outside of double entries. On the double entries itself there is not much room available to cook the books.
Most historic frauds kept big items out of the double entry books altogether. So if you take a figure in the balance sheet, it will have a corresponding figure somewhere. Your thoughts “Does reported figure makes sense?” Is correct. But in searching for the answers you have to stop looking at the figures in the annual report because the second part of that number is definitely captured and explained to the auditors.
Look at revenue, rest of the interest added to income statement. Maybe they are capitalising all their interest, not just the loan used for capex.
In the above if you just add all the numbers, the money, loan, interest, you’ll get the capex. But the question should be, does the interest here makes sense.
Sorry for the long winded message