Final answer:
Capitalization is not a source of receipts and payments in the statement of cash flows; it is an accounting treatment of costs. The cash flow statement reflects actual cash transactions from operations, investing, and financing, not the capitalization of expenses.
Step-by-step explanation:
When auditing the statement of cash flows, an auditor would not expect capitalization to be a source of receipts and payments. This is because capitalization refers to the accounting treatment of expenditure by which a cost is recognized and recorded as part of the value of an asset on the balance sheet, rather than being charged immediately to expense. In contrast, receipts and payments within the statement of cash flows typically arise from financing, investing, and operations.
Firms may source financial capital through various means, such as reinvesting profits in equipment, structures, and research and development. When profits are not enough, they may turn to borrowing from banks or bonds, or even issuing stock. However, capitalization is not considered a transaction that would appear in the cash flow statement as it is not a direct inflow or outflow of cash.