Statement of cash flows: Key differences between U.S. GAAP and IFRSs 

http://www.iasplus.com/en-us/standards/ifrs-usgaap/cashflows

Under U.S. GAAP, ASC 230 is the primary source of guid­ance for pre­sen­ta­tion of the state­ment of cash flows.

Under IFRSs, IAS 7, State­ment of Cash Flows, is the primary source of guid­ance for pre­sen­ta­tion of the state­ment of cash flows.

The table below sum­ma­rizes these dif­fer­ences and is fol­lowed by a de­tailed ex­pla­na­tion of each dif­fer­ence.¹

Subject	U.S. GAAP	IFRSs
De­f­i­n­i­tion of cash and cash equiv­a­lents	Cash and short-term, highly liquid in­vest­ments are in­cluded. Bank over­drafts are ex­cluded. Re­stricted cash is not in­cluded in cash and cash equiv­a­lents. Instead, changes in re­stricted cash should gen­er­ally be pre­sented as in­vest­ing ac­tiv­i­ties.	Cash and short-term, highly liquid in­vest­ments are in­cluded. Bank over­drafts are in­cluded in certain sit­u­a­tions.
Clas­si­fi­ca­tion of com­po­nents of trans­ac­tions in the state­ment of cash flows	Com­po­nents of a trans­ac­tion are clas­si­fied col­lec­tively on the basis of the pre­dom­i­nant source of the cash flows.	Sep­a­rate com­po­nents of a single trans­ac­tion are clas­si­fied as op­er­at­ing, in­vest­ing, or fi­nanc­ing.
State­ment of cash flows clas­si­fi­ca­tion	More spe­cific guid­ance is pro­vided on items to be in­cluded in each cat­e­gory.	More flex­i­bil­ity exists re­gard­ing which items are to be in­cluded in each cat­e­gory.
Re­port­ing cash flows from op­er­at­ing ac­tiv­i­ties	Use of the direct or in­di­rect method is allowed. Under both methods, net income must be rec­on­ciled to net cash flows from op­er­at­ing ac­tiv­i­ties.	Use of the direct or in­di­rect method is allowed. Net income must be rec­on­ciled to net cash flows from op­er­at­ing ac­tiv­i­ties only under the in­di­rect method.
Com­par­a­tive periods	Pre­sen­ta­tion of com­par­a­tive periods is not re­quired.	The most recent two years must be pre­sented.
Scope	Pro­vides in­dus­try-spe­cific guid­ance (e.g., not-for-profit en­ti­ties (NFPs)).	Pro­vides prin­ci­ples for clas­si­fi­ca­tion of cash flows but little in­dus­try-spe­cific guid­ance.
Scope ex­emp­tions	Limited scope ex­emp­tions exist for defined benefit plans and for certain in­vest­ment com­pa­nies.	No scope ex­emp­tions exist.
Dis­clo­sure of cash flows per­tain­ing to dis­con­tin­ued op­er­a­tions	Before ap­pli­ca­tion of ASU 2014-08 — Sep­a­rate dis­clo­sure is not re­quired. If a company elects to report cash flows from dis­con­tin­ued op­er­a­tions, it must report them sep­a­rately by cat­e­gory. After ap­pli­ca­tion of ASU 2014-08 — Must dis­close either the total op­er­at­ing and in­vest­ing cash flows of the dis­con­tin­ued op­er­a­tion or the de­pre­ci­a­tion, amor­ti­za­tion, capital ex­pen­di­tures, and sig­nif­i­cant op­er­at­ing and in­vest­ing noncash items of the dis­con­tin­ued op­er­a­tion.	Dis­clo­sure of cash flows from dis­con­tin­ued op­er­a­tions under each cat­e­gory is re­quired 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	Pro­hib­ited.	Dis­clo­sure of cash flow per share is not ex­plic­itly pro­hib­ited.
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 certain re­quire­ments are met and the ac­count­ing policy is dis­closed.	Com­pa­nies are re­quired to clas­sify cash flows from hedging ac­tiv­i­ties in the same cat­e­gory as the cash flows from the item being hedged.

De­f­i­n­i­tion of Cash and Cash Equiv­a­lents

The de­f­i­n­i­tion of cash and cash equiv­a­lents under U.S. GAAP is similar to that under IFRSs. The de­f­i­n­i­tions in ASC 230-10-20 and para­graph 6 of IAS 7 both include cash and short-term, highly liquid in­vest­ments with ma­tu­ri­ties of gen­er­ally three months or less. One dis­tin­guish­ing feature is that under IFRSs, cash and cash equiv­a­lents may include bank over­drafts if they are an "in­te­gral part of an entity's cash man­age­ment." Para­graph 8 of IAS 7 ex­plains that in these cir­cum­stances, "the bank balance often fluc­tu­ates from being pos­i­tive to over­drawn." If an entity clas­si­fies bank over­drafts as cash and cash equiv­a­lents, it should dis­close this policy.
In ad­di­tion, under U.S. GAAP, re­stricted cash is ex­cluded from the de­f­i­n­i­tion of cash and cash equiv­a­lents. Changes in re­stricted cash are gen­er­ally pre­sented as in­vest­ing ac­tiv­i­ties.
Under U.S. GAAP, ASC 230-10-45-4 states that the "total amounts of cash and cash equiv­a­lents at the be­gin­ning and end of the period shown in the state­ment of cash flows shall be the same amounts as sim­i­larly titled line items or subto­tals shown in the state­ments of fi­nan­cial po­si­tion as of those dates." Under IFRSs, para­graph 45 of IAS 7 states that an entity is re­quired to rec­on­cile "the amounts [of cash and cash equiv­a­lents] in its state­ment of cash flows with the equiv­a­lent items re­ported in the state­ment of fi­nan­cial po­si­tion."
Under U.S. GAAP, ASC 230-10-50-1 re­quires en­ti­ties to dis­close their poli­cies for de­ter­min­ing cash and cash equiv­a­lents. Under IFRSs, para­graph 46 of IAS 7 in­di­cates that an entity is re­quired to dis­close its policy for de­ter­min­ing cash and cash equiv­a­lents; but para­graph 45 of IAS 7 also re­quires dis­clo­sure of the com­po­nents of cash and cash equiv­a­lents.

Clas­si­fi­ca­tion of Com­po­nents of Trans­ac­tions in the State­ment of Cash Flows

Under U.S. GAAP, ASC 230-10-45-22 and 45-23 in­di­cate that when a cash receipt or payment has char­ac­ter­is­tics of more than one cat­e­gory of cash flows, it is clas­si­fied on the basis of the pre­dom­i­nant source of the cash flow.
Under IFRSs, para­graph 12 of IAS 7 in­di­cates that a company should clas­sify each in­di­vid­ual com­po­nent in a trans­ac­tion sep­a­rately as either op­er­at­ing, in­vest­ing, or fi­nanc­ing.

State­ment of Cash Flows Clas­si­fi­ca­tion

ASC 230-10-45-10 under U.S. GAAP and para­graph 10 of IAS 7 under IFRSs in­di­cate that cash flows are clas­si­fied into three cat­e­gories: op­er­at­ing, in­vest­ing, and fi­nanc­ing. While the head­ings are the same, ASC 230-10-45-10 through 45-17 under U.S. GAAP include more spe­cific guid­ance on clas­si­fi­ca­tion of certain trans­ac­tions as follows:

Trans­ac­tions	Clas­si­fi­ca­tion Under U.S. GAAP	Clas­si­fi­ca­tion Under IFRSs
In­ter­est paid	Op­er­at­ing	Op­er­at­ing2 or fi­nanc­ing
In­ter­est re­ceived	Op­er­at­ing	Op­er­at­ing2 or in­vest­ing
Div­i­dends paid	Fi­nanc­ing	Op­er­at­ing or fi­nanc­ing
Div­i­dends re­ceived	Op­er­at­ing or in­vest­ing3	Op­er­at­ing or in­vest­ing
Taxes paid	Op­er­at­ing	Op­er­at­ing4

Re­port­ing Cash Flows From Op­er­at­ing Ac­tiv­i­ties

ASC 230-10-45-25 under U.S. GAAP and para­graph 18 of IAS 7 under IFRSs both allow the use of the direct or in­di­rect method for re­port­ing cash flows from op­er­at­ing ac­tiv­i­ties, with most com­pa­nies using the in­di­rect method. However, there are dif­fer­ences between the two sets of ac­count­ing stan­dards. Under U.S. GAAP, ASC 230-10-45-29 in­di­cates that a company must rec­on­cile net income to net cash flows from op­er­at­ing ac­tiv­i­ties re­gard­less of whether it is using the direct method or the in­di­rect method. Under IFRSs, para­graph 18 of IAS 7 in­di­cates that a company must rec­on­cile net income (profit or loss) to net cash flows from op­er­at­ing ac­tiv­i­ties only when it is using the in­di­rect method.

Com­par­a­tive Periods

Under U.S. GAAP, ASC 230 does not require the pre­sen­ta­tion of com­par­a­tive cash flow state­ments. However, for SEC reg­is­trants, SEC Reg­u­la­tion S-X, Rule 3-02, "Con­sol­i­dated State­ments of Income and Changes in Fi­nan­cial Po­si­tions," re­quires an audited cash flow state­ment to be pre­sented for the pre­vi­ous three fiscal years.
Under IFRSs, para­graph 36 of IAS 1, Pre­sen­ta­tion of Fi­nan­cial State­ments, re­quires en­ti­ties to present one year of com­par­a­tive cash flow state­ments.

Scope

Under U.S. GAAP, ASC 230 pro­vides certain in­dus­try-spe­cific guid­ance (e.g., for NFPs, in­vest­ment com­pa­nies, and real estate en­ti­ties).
IAS 7 con­tains some guid­ance that is spe­cific to fi­nan­cial in­sti­tu­tions; however, it does not provide as much in­dus­try-spe­cific guid­ance as ASC 230.

Scope Ex­emp­tions

Under IFRSs, en­ti­ties are not exempt from pro­vid­ing a state­ment of cash flows. Under U.S. GAAP, ASC 230-10-15-4(a) states that state­ments of cash flows are not re­quired to be pro­vided in defined benefit pension plans and certain other em­ployee benefit plans that present fi­nan­cial in­for­ma­tion in ac­cor­dance with or similar to that re­quired by ASC 960. In ad­di­tion, highly liquid in­vest­ment com­pa­nies that meet all of the cri­te­ria in ASC 230-10-15-4(c) are exempt from the re­quire­ment to provide a state­ment of cash flows.

Dis­clo­sure of Cash Flows Per­tain­ing to Dis­con­tin­ued Op­er­a­tions

Under U.S. GAAP

ASU 2014-08 is ef­fec­tive for public en­ti­ties prospec­tively for all dis­pos­als (or clas­si­fi­ca­tions as held for sale) of com­po­nents oc­cur­ring in an annual period be­gin­ning on or after De­cem­ber 15, 2014. All other en­ti­ties have an ad­di­tional year to adopt the ASU. Early adop­tion is per­mit­ted (with certain lim­i­ta­tions).
Before ap­pli­ca­tion of ASU 2014-08 — Under U.S. GAAP, an entity is not re­quired to dis­close cash flows per­tain­ing to dis­con­tin­ued op­er­a­tions sep­a­rately in the state­ment of cash flows but may choose to do so. See ASC 230-10-45-24. See also 230-10-45 (Q&A 30) for further dis­cus­sion of pre­sen­ta­tion al­ter­na­tives.
After ap­pli­ca­tion of ASU 2014-08 — Under U.S. GAAP, an entity must provide either of the fol­low­ing dis­clo­sures about a dis­con­tin­ued op­er­a­tion (if not already pre­sented on the face of the fi­nan­cial state­ments as part of dis­con­tin­ued op­er­a­tions):

• 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.

See ASC 205-20-50-5B(c).

Under IFRSs

Para­graph 33(c) of IFRS 5, Non-Cur­rent Assets Held for Sale and Dis­con­tin­ued Op­er­a­tions, re­quires that net cash flows per­tain­ing to dis­con­tin­ued op­er­a­tions for each of the cat­e­gories in the state­ment of cash flows be pre­sented either in the notes to the fi­nan­cial state­ments or on the face of the cash flow state­ment.

Pre­sen­ta­tion of Cash Flow per Share on the Face of the Fi­nan­cial State­ments

Under U.S. GAAP, ASC 230-10-45-3 pro­hibits an entity from re­port­ing cash flow per share.
Under IFRSs, there is no ex­plicit pro­hi­bi­tion of re­port­ing cash flow per share, and IAS 7 does not refer to dis­clo­sure of this metric. Ac­cord­ingly, an entity may choose to vol­un­tar­ily report cash flow per share.

Cash Flows From Hedging In­stru­ments

Under U.S. GAAP, an entity that ac­counts for a de­riv­a­tive in­stru­ment as a fair value hedge or cash flow hedge may clas­sify the cash flows from these hedging ac­tiv­i­ties in the same cat­e­gory as the cash flows from the hedged items, pro­vided that the entity meets the fol­low­ing cri­te­ria set forth in ASC 230-10-45-27:

• "[T]he de­riv­a­tive in­stru­ment does not include an other-than-in­signif­i­cant fi­nanc­ing element at in­cep­tion, other than a fi­nanc­ing element in­her­ently in­cluded in an at-the-mar­ket de­riv­a­tive in­stru­ment with no pre­pay­ments."
• "[T]he ac­count­ing policy is dis­closed."

Under IFRSs, para­graph 16 of IAS 7 re­quires an entity to clas­sify cash flows from hedging in­stru­ments in the same cat­e­gory as the cash flows from the item being hedged.
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1 Dif­fer­ences are based on com­par­i­son of au­thor­i­ta­tive lit­er­a­ture under U.S. GAAP and IFRSs and do not nec­es­sar­ily include in­ter­pre­ta­tions of such lit­er­a­ture.

2 Para­graph 33 of IAS 7 in­di­cates that fi­nan­cial in­sti­tu­tions typ­i­cally clas­sify both in­ter­est paid and re­ceived as op­er­at­ing.

3 ASC 230-10-45-12(b) and ASC 230-10-45-16(b) dis­tin­guish between returns of in­vest­ment, which should be clas­si­fied as inflows from in­vest­ing ac­tiv­i­ties, and returns on in­vest­ment, which should be clas­si­fied as inflows from op­er­at­ing ac­tiv­i­ties.

4 Para­graph 35 of IAS 7 notes that these trans­ac­tions are clas­si­fied as op­er­at­ing unless specif­i­cally iden­ti­fied with fi­nanc­ing or in­vest­ing ac­tiv­i­ties.