Appendix E — Differences Between U.S. GAAP and IFRS Accounting Standards
U.S. GAAP and IFRS® Accounting Standards 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, as shown in the table below, there are a number of
differences between the two sets of standards regarding presentation in the
statement of cash flows.
Subject | U.S. GAAP (ASC 230-10) | IFRS Accounting Standards (IAS 1, IAS 7) |
---|---|---|
Scope | Although all entities are required to
present a statement of cash flows, there are certain
exceptions. Entities that are not required to present a
statement of cash flows include defined benefit pension
plans that prepare financial information in accordance with
ASC 960, certain investment companies within the scope of
ASC 946 that meet all of the conditions in ASC
230-10-15-4(c), and certain funds described in ASC
230-10-15-4(b)(3). | Under paragraph 7 of IAS 7, all entities
are required to present a statement of cash flows (i.e.,
there are no scope exceptions). |
Method of reporting cash flows from operating
activities
|
Under ASC 230-10-45-25, 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.
|
Under paragraph 18 of IAS 7, 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.
|
Presentation of bank overdrafts
|
Bank overdrafts cannot be presented in cash and
cash equivalents.
|
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 in the
statement of cash flows will need to disclose this
policy.
|
Presentation of restricted cash | Amounts generally described as restricted cash or restricted cash equivalents must be included in an entity’s beginning and ending balances of cash and cash equivalents as presented in the statement of cash flows regardless of whether they are included in cash and cash equivalents on the balance sheet. | 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 balances of cash and cash equivalents 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 in the statement of cash flows
unless an entity classifies these amounts as cash
and cash equivalents on its balance sheet. |
Classification in the statement of cash flows | ASC 230-10-45-10 requires that cash flows be classified and presented in one of
three categories: operating, investing, or financing. ASC
230 provides more specific guidance than IFRS Accounting
Standards on items to be included in each category. | Paragraph 10 of IAS 7 requires that cash flows be classified and presented in
one of three categories: operating, investing, or
financing. IAS 7 is more flexible than U.S. GAAP
regarding which items are to be included in each
category. |
Presentation of components of transactions
with characteristics of more than one category of cash
flows |
Under ASC 230-10-45-22, ASC
230-10-45-22A, and ASC 230-10-45-23, 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 in
operating, investing, and financing . 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.
| Paragraph 12 of IAS 7 requires that an entity 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. |
Disclosure of cash flows pertaining to
discontinued operations | An entity must disclose either of the
following if it is not already presented on the face of the
cash flows statement:
| In accordance with paragraph 33(c) of IFRS 5, 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. |
Presentation of cash flow per share on the
face of the financial statements | In accordance with ASC 230-10-45-3, an entity is prohibited from reporting cash flow per share. | Under IFRS Accounting Standards (including IAS 7, which does not mention this
metric), an entity is not explicitly prohibited from
disclosing cash flow per share. |
Taxes paid | Under ASC 230-10-45-25, taxes paid are
classified as operating activities. | Under paragraph 14(f) of IAS 7, taxes paid
are classified as operating activities unless they can be
specifically identified within financing and investing
activities. |
Interest and dividends paid and
received | Under ASC 230, interest paid and received should be classified as operating
activities.
Cash flows from interest paid must be disclosed
separately if the indirect method is used. Dividends received are classified as operating activities because these are
generally considered to be returns on an entity’s investment. However, a dividend from
an equity method investment may be investing if the
distribution is a return of
investment. That is, for distributions from equity method
investments, an entity is required to determine whether the
distribution is a return on or a return of the entity’s
investment. See Section
6.1.2 for specific guidance on distributions
from equity method investments. Dividends
paid are classified as financing activities. | Under IAS 7,
entities should elect accounting policies for
presenting interest and dividends paid as either
operating or financing activities. In addition,
entities should elect accounting policies for
presenting interest and dividends received as
either operating or investing activities. Cash flows from interest and
dividends received and paid must be disclosed
separately. Note that IAS 7
does not include a requirement to determine
whether a distribution from an equity method
investment is a return on, or a return of, the
entity’s investment. |
Remittances of statutory withholdings on
share-based payment awards
|
For U.S. GAAP guidance, see
Section 7.3.5.
|
Under IAS 7, 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.
|
Leases
|
After the adoption of ASC 842, a lessee should
present payments associated with its leases in the
statement of cash flows as follows:
See Section
7.6 for more information.
|
The lessee should present payments associated
with its leases in the statement of cash flows as follows:
|
Settlement of zero-coupon debt instruments
or other debt instruments that are insignificant in relation
to the effective interest rate of the borrowing | As bonds are accreted from issuance to
maturity, the interest expense is presented as a reconciling
item between net income and cash flows from operating
activities. At redemption, the cash paid to settle the
interest component is classified as an operating activity
and the cash paid to settle the principal is classified as a
financing activity. See Sections 6.4.2 and 6.4.3. | Rather than including specific guidance as is done in U.S. GAAP, IFRS Accounting
Standards include principles related to assessing the
classification of the cash flows as operating, investing, or
financing activities. |
Contingent consideration payments made
after the date of a business combination | Contingent consideration payments that are not made soon after the acquisition
date must be classified as financing activities;
any excess cash payments (that are in excess of
the fair value of the consideration recorded after
the business combination) will be classified as
operating activities. Cash payments made soon
after the acquisition date in a business
combination transaction must be classified as
investing activities (see Section
7.5.4.1). | IFRS Accounting Standards do not provide guidance similar to that in U.S. GAAP
(under U.S. GAAP, such guidance is based on when contingent
consideration payments are made in relation to the date of a
business combination). Instead, an entity should assess the
nature of the transaction on the basis of the general
principle of classification of the cash flows as operating
or financing activities. |
Proceeds from the settlement of insurance
claims | Proceeds from the settlement of insurance
claims should generally be classified on the basis of the
nature of the loss (see Section
6.3.2). | Rather than including specific guidance as is done in U.S. GAAP, IFRS Accounting
Standards include principles related to assessing the
classification of the cash flows as operating, investing, or
financing activities. |
Proceeds from the settlement of company-owned or BOLI policies | ASC 230-10-45-21C indicates that proceeds from the settlement of company-owned
or BOLI policies should be classified as investing
activities (see Section 6.1.5). | Rather than including specific guidance as is done in U.S. GAAP, IFRS Accounting
Standards include principles related to assessing the
classification of the cash flows as operating, investing, or
financing activities. |
Beneficial interests in a securitization
transaction | For U.S. GAAP guidance, see Sections 7.9 and 7.9.1. | Rather than including specific guidance as is done in U.S. GAAP, IFRS Accounting
Standards include principles related to assessing the
classification of the cash flows as operating, investing, or
financing activities. |
Income tax effects of share-based payment
awards | Excess tax benefits or tax deficiencies
represent operating activities (see Section
7.3.2). | IFRS Accounting Standards do not include explicit guidance on classifying excess
tax benefits related to share-based payment awards. |
Comparative periods | Under ASC
230, presentation of comparative periods is not
required. However, SEC Regulation S-X, Rule
3-02, requires that an audited cash flow statement
be presented for the previous three fiscal
years. | Under
paragraph 36 of IAS 7, the most recent two years
must be presented. Under the general
requirements of paragraphs 38 and 38A of IAS 1,
comparative information related to the preceding
period should be presented for all amounts
reported in the current-period statement of cash
flows and the supporting notes. Consequently, an
entity should present, at a minimum, two
statements of cash flows. |
Cash flows from hedging instruments | A company may classify cash flows from hedging activities in the same category
as the cash flows from the hedged item provided
that the requirements in ASC 230-10-45-27 are met
(i.e., regarding the financing element at
inception and disclosure of the accounting
policy). | Paragraph 16 of IAS 7 requires entities to classify cash flows from hedging activities in the same category as the cash flows from the item being hedged. |