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.

Topic	IFRS Accounting Standards (IAS 7)	U.S. GAAP (ASC 230-10)
Scope	All entities must present a statement of cash flows (i.e., there are no scope exceptions).	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.
Method of reporting cash flows from operating activities	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.	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.
Presentation of bank overdrafts	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.	Bank overdrafts cannot be presented in cash and cash equivalents.
Presentation of restricted cash	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.	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.
Classification in the statement of cash flows	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.	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.
Presentation of components of transactions with characteristics of more than one category of cash flows	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.	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.
Disclosure of cash flows pertaining to discontinued operations	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.	An entity must disclose either of the following if it is not already presented on the face of the cash flow statement: The total operating and investing cash flows of the discontinued operation. The depreciation, amortization, capital expenditures, and significant operating and investing noncash items of the discontinued operation.
Presentation of cash flow per share on the face of the financial statements	An entity is not explicitly prohibited from disclosing cash flow per share.	An entity is prohibited from disclosing cash flow per share.
Taxes paid	Taxes paid are classified as operating activities unless they can be specifically identified within financing and investing activities.	Taxes paid are classified as operating activities.
Interest and dividends paid and received	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.	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.
Remittances of statutory withholdings on share-based payment awards	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.	Cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements should be presented as financing activities.
Leases	A lessee should present payments associated with its leases in the statement of cash flows as follows: Present the principal portion of the payment as a financing activity. Present the interest portion of the payment as either a financing or an operating activity, depending on the lessee’s accounting policy election under IAS 7.	A lessee should present payments associated with its leases in the statement of cash flows as follows: Finance leases: Present the principal portion of the payment as a financing activity. Present the interest portion of the payment as an operating activity. Operating leases: Present payments as an operating activity.
Comparative periods	An entity must provide one year of comparative financial information.	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.

Changing Lanes

As mentioned above, in developing IFRS 18, the IASB made minor amendments to IAS 7. These changes include:

Requiring all entities to use the operating profit subtotal as the starting point for the indirect method of reporting cash flows from operating activities.
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:
- 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.
- 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.