Statement of Cash Flows

1
Statement of Cash Flows

• IAS 7 vs. FAS 95

2
Same format choices and same three categories

• IFRS

• US GAAP

• Direct or indirect format
• Operating
• Financing
• Investing

• Direct or indirect format
• Operating
• Financing
• Investing

3
Other disclosures

• IFRS

• US GAAP

• Noncash financing and investing activities must
  be disclosed elsewhere not on the face of the
  SCF
• Reconciliation of cash and cash equivalents to
  balance sheet

• Noncash financing and investing activities must
  be disclosed generally in notes

4
What goes in the categories is NOT the same!

• US GAAP Some categories never made very good
  sense Interest paid, interest received, and
  dividends received are all classified as
  operating so IFRS is probably an improvements!
• The differences are not entirely obvious from
  just reading the IFRS lists of what goes where!
• See para. 31-34 on interest an dividends
• See para. 35-35 on taxes

5
IAS 7 differences

• Required Statement no exemptions to certain
  investment entities
• Bank overdrafts are cash and cash equivalents
• Primary difference with US GAAP is in
  classification
• Provides greater flexibility
• Must separately disclose on the statement
• interest and dividends received and paid
• Income taxes
• This is also true for US GAAP but might require a
  separate disclosure if these items are reported
  under multiple categories under IFRS

6
Operating activities

• Examples of cash flows from operating activities
  are
• cash receipts from the sale of goods and the
  rendering of services
• cash receipts from royalties, fees, commissions
  and other revenue
• cash payments to suppliers for goods and
  services
• cash payments to and on behalf of employees
• cash receipts and cash payments of an insurance
  entity for premiums and claims, annuities and
  other policy benefits
• cash payments or refunds of income taxes unless
  they can be specifically identified with
  financing and investing activities and
• cash receipts and payments from contracts held
  for dealing or trading purposes.

7
Investing activities

• Examples of cash flows arising from investing
  activities are
• cash payments to acquire PPE. intangibles and
  other long-term assets
• cash receipts from sales of PPE, intangibles and
  other long-term assets
• cash payments to acquire investments including
  joint ventures, futures contracts and other
  derivatives
• cash receipts from sales investments and joint
  ventures, futures contracts and other
  derivatives
• cash advances and loans made to other parties
• cash receipts from the repayment of advances and
  loans made to other parties
• other than cash flows related to instruments
  considered to be cash equivalents and those held
  for dealing or trading purposes

8
Financing activities

• Examples of cash flows arising from financing
  activities are
• cash proceeds from issuing shares or other equity
  instruments
• cash payments to owners to acquire or redeem the
  entitys shares
• cash proceeds from issuing debentures, loans,
  notes, bonds, mortgages and other short or
  long-term borrowings
• cash repayments of amounts borrowed
• cash payments by a lessee for the reduction of
  the outstanding liability relating to a finance
  lease

9
Statement of Cash Flows (continued)
Transaction US GAAP Classification IFRS Classification
Interest Received Operating Operating or Investing
Dividends Received Operating Operating or Investing
Interest Paid Operating Financing or Operating
Dividends Paid Financing Financing or Operating
Income Taxes Operating Operating unless specifically associated with financing or investing activity
10
Statement of Cash Flows - Exercise 1 Solution

• For each of the following, indicate how the
  transaction should be classified under both US
  GAAP and IFRS

Cash Flow Transaction US GAAP IFRS
Interest Received operating Operating or investing
Borrowed Long Term Debt financing financing
Paid dividends financing Financing or operating
Paid suppliers for goods operating operating
Sold land investing investing
Receipt from sale of goods operating operating
Paid interest operating Financing or operating
Received dividends operating Operating or investing
11
Statement of Cash Flows - Exercise 2

• For each of the following, indicate how the
  transaction should be classified under both US
  GAAP and IFRS

Cash Flow Transaction US GAAP IFRS
Interest Received on borrowings for Land investment
Borrowed Long Term Debt to supplement operations
Paid interest on borrowings associated with building a new manufacturing plant
Received dividends on trading securties