Having objects cast shadows from dynamic (moving/not static) light sources is possible and has been done in other games.

However, the performance cost of implementing it into Arma 3 would be huge simply due to the shear number of dynamic light sources it is possible to have in a single rendered scene (think 40 soldiers all with flashlights storming a town at night). Forcing all objects in the game world to cast shadows from multiple dynamic light sources is simply not feasible with current graphics hardware. The only options left are to either reduce the number of light sources rendered in any one scene or render them all but not allow them to cast shadows.

The current approach is actually a combination of the two but the number of light sources possible to be rendered at once is dramatically higher than it would be if the engine were forced to calculate shadows for each individual light.

It's unfortunate but I believe its more a limitation of current generation graphics hardware processing power not a bug in the Arma engine itself.

Also this is a duplicate of http://feedback.arma3.com/view.php?id=4180.

Cenwulf, yes, but you do not need to draw every single one of them on the whole Altis, 30 quadratic meters could be enough!

I think this may have been fixed! I was playing about on Zeus and the flash lights weren't penetrating walls or even H-barriers. Try it out.

If it is it pretty much disproves my previous post xD

Cenwulf, facepalm.... I am not talking about objects you can add yourself with the editor.... I am talking about houses and majority of static objects already existing on the map and I am also talking about the flashlight!!!

Even though dynamic shadows exist in the game, they are stencil, not shadow maps... It's incorrect due to an odd CPU utilization instead of GPU

I was also talking about static map placed objects, was simply using zeus to test it.

I got Zeus, gave a dude a flashlight and pointed him at stuff. Here are some screenshots:
https://www.dropbox.com/s/8djdz3puc6qzli9/2014-07-16_00001.jpg
https://www.dropbox.com/s/tm1ux3ahjh7v6vv/2014-07-16_00002.jpg
https://www.dropbox.com/s/m20ndgseu30gen8/2014-07-16_00003.jpg
https://www.dropbox.com/s/nse7iqrl28kkyai/2014-07-16_00004.jpg
https://www.dropbox.com/s/7mkh8m3ugrw8osa/2014-07-16_00005.jpg
https://www.dropbox.com/s/daq79pnzvyznjme/2014-07-16_00006.jpg

From the looks of it you're right, light still penetrates walls but for me it's much less noticeable than I seem to remember it being. It's not a true shadow though, they simply reduce the range/intensity of the light when shone at objects that should block it so some light still gets through.

Does this look like an improvement or do the screenshots basically illustrate what you are reporting?

Closing as duplicate.