4.3 Statement of Cash Flows
IFRS Accounting Standards and U.S. GAAP contain similar guidance on
presentation in the statement of cash flows, including the requirement to separate cash
flows into operating, investing, and financing activities. Both also allow the use of
the direct or indirect method of presenting cash flows from operating activities.
However, there are a number of differences between the two sets of standards regarding
presentation in the statement of cash flows, which are shown in the table below.
Changing Lanes
As mentioned above, in developing IFRS 18, the IASB made minor amendments to IAS 7.
These changes include:
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Requiring all entities to use the operating profit subtotal as the starting point for the indirect method of reporting cash flows from operating activities.
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Removing the presentation alternatives for cash flows related to interest and dividends paid and received. The standard distinguishes between entities that invest in assets or provide financing to customers as a main business activity (“specified main business activities”) and entities that do not engage in such activities, as follows:
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Entities that conduct these specified main business activities are required to classify in the operating category some income and expenses that would otherwise be classified in the investing category or the financing category.
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Entities that do not conduct these specified main business activities should classify (1) interest and dividends received as cash flows from investing activities and (2) interest and dividends paid as cash flows from financing activities.
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Topic
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IFRS Accounting Standards (IAS 7)
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U.S. GAAP (ASC 230-10)
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Scope
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All entities must present a statement of cash
flows (i.e., there are no scope exceptions).
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All entities must present a statement of cash
flows, with the following exceptions: certain trust funds; a
common trust fund, variable annuity account, or similar fund
maintained by a bank, insurance entity, or other entity in its
capacity as a trustee, administrator, or guardian for the
collective investment and reinvestment of funds; certain defined
benefit pension plans; and certain investment companies.
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Method of reporting cash flows from operating
activities
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An entity is allowed to use the direct or
indirect method. Net income must be reconciled to net cash flows
from operating activities only under the indirect method.
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An entity is allowed to use the direct or
indirect method. Under both methods, net income must be
reconciled to net cash flows from operating activities.
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Presentation of bank overdrafts
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Bank overdrafts may be included as components of cash and cash
equivalents in certain situations if they are an “integral part
of an entity’s cash management,” even though such overdrafts are
not presented in cash and cash equivalents on the balance sheet
unless the offsetting criteria in IAS 32 are met. An entity that
classifies bank overdrafts as cash and cash equivalents on the
statement of cash flows will need to disclose this policy.
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Bank overdrafts cannot be presented in cash and cash
equivalents.
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Presentation of restricted cash
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There is no specific guidance on whether amounts generally
described as restricted cash or restricted cash equivalents
should be included in an entity’s beginning and ending cash and
cash equivalents balances as presented in the statement of cash
flows. However, amounts generally described as restricted cash
or restricted cash equivalents are not included in these
balances on the statement of cash flows unless an entity
classifies these amounts as cash and cash equivalents on its
balance sheet.
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Amounts generally described as restricted cash or restricted cash
equivalents must be included in an entity’s beginning and ending
cash and cash equivalents balances as presented in the statement
of cash flows regardless of whether they are included in cash
and cash equivalents on the balance sheet.
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Classification in the statement of cash flows
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Cash flows must be classified and presented in one of three
categories: operating, investing, or financing. The guidance is
more flexible than that in U.S. GAAP regarding which items
should be included in each category.
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Cash flows must be classified and presented in
one of three categories: operating, investing, or financing. The
guidance is more specific than that in IFRS Accounting Standards
regarding which items should be included in each category.
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Presentation of components of transactions with characteristics
of more than one category of cash flows
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An entity should classify individual components
of a single transaction separately as operating, investing, or
financing, depending on the nature of the transaction. IFRS
Accounting Standards do not provide guidance on situations in
which individual components of a single transaction cannot be
separately identified.
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An entity first needs to determine whether there are separately
identifiable cash flows within a specific transaction. If so,
the entity presents such cash flows on the basis of their nature
within operating, investing, or financing activities. In the
absence of separately identifiable cash flows, the entity would
present such cash flows collectively on the basis of the
predominant source or use of the cash flows.
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Disclosure of cash flows pertaining to discontinued
operations
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An entity must disclose cash flows from discontinued operations
under each category either on the face of the cash flow
statement or in the notes.
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An entity must disclose either of the following
if it is not already presented on the face of the cash flow
statement:
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Presentation of cash flow per share on the face of the financial
statements
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An entity is not explicitly prohibited from disclosing cash flow
per share.
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An entity is prohibited from reporting cash flow per share.
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Taxes paid
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Taxes paid are classified as operating activities unless they can
be specifically identified within financing and investing
activities.
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Taxes paid are classified as operating activities.
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Interest and dividends paid and received
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An entity should elect accounting policies for presenting (1)
interest received and (2) dividends received as either operating
or investing activities.
An entity should elect accounting policies for presenting (1)
interest paid and (2) dividends paid as either operating or
financing activities.
Cash flows from interest and dividends received and paid must be
disclosed separately.
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Interest paid and received should be classified as operating
activities.
Dividends received should generally be classified as operating
activities because these are considered to be returns on an
entity’s investment.
Dividends paid should be classified as financing activities.
Cash flows from interest paid must be disclosed separately if the
indirect method is used.
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Remittances of statutory withholdings on share-based payment
awards
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An entity should assess the nature of the transaction on the
basis of the general principles of classification of the cash
flows as operating or financing, as well as the applicable
noncash activity disclosures.
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Cash payments to tax authorities in connection with shares
withheld to meet statutory tax withholding requirements should
be presented as financing activities.
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Leases
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A lessee should present payments associated with
its leases in the statement of cash flows as follows:
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A lessee should present payments associated with its leases in
the statement of cash flows as follows:
Finance leases:
Operating leases:
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Comparative periods
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An entity must provide one year of comparative financial
information.
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Presentation of comparative periods is not specifically required.
However, SEC Regulation S-X, Rule 3-02, requires that two years
of comparative financial information for the cash flow statement
be presented.
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