How preparing statement of cash flows is different under IFRSs and GAAPs?

One of the key benefits of statement of cash flows or cash flow statement is its comparability. This is due to the fact that although we have difference accounting frameworks in the world even then cash flow statements are produced on almost the same basis. Definitely, there will be some differences if look deeper but overall from format to the content of statement of cash flows, things are almost similar.

But as said earlier, differences can be there and must be known so that if we are comparing statement of cash flows prepared under two different frameworks then we can understand them better.

Preparing statement of cash flows under International Financial Reporting Standards (IFRSs) and US’s Generally Accepted Accounting Principles is almost the same but following are the notable differences:

Under the accounting standards issued by IASB which are known as IFRSs (or IASs) the standard that deals with the statement of cash flows is IAS 7 where as under US GAAPs the relevant standard is ASC 230. In this answer ASC 230 and GAAP will be used to mean the same thing. Similarly the use of IFRSs and IAS 7 is one and the same from this point onward in this answer.

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Preparing statement of cash flows

IAS 7 gives entity an option to prepare statement of cash flows either using Direct method or Indirect method. Although standard encourages preparing cash flow statement using direct method but it is not mandatory. Under IFRSs entities are not required to provide schedule of reconciliation between net income and net cash flows from operating activities if direct method is used.

ASC 230 also gives entity a free hand to prepare cash flow statement using any of the available methods i.e. Direct or Indirect method. ASC 230 is also a strong supporter of direct method but even here it is not a compulsion.

However, ASC 230 requires entities to provide a schedule reconciling net income for the period with net cash flows from operating activities if entity follows direct method to prepare the financial statement. This reconciliation is provided automatically when indirect method is followed.

Interest and dividends paid and received

IAS7 (IFRSs) gives entity an option to report interest paid and dividends paid as operating activities or financing activities cash flows. For interest and dividends received, again an entity has the option to disclose them either under operating activities or investing activities.

However, it is mentioned that financial institutions generally classify interest and dividends received and paid as operating activities cash flows.

ASC 230 (GAAPs) however, gives clear instructions on how to disclose interest and dividends received and paid which is as follows:

Operating activities

Interest received (inflow)
Interest paid (outflow)
Dividends received (inflow)

Financing activities

Dividends paid

Bank overdrafts

IAS7 treats bank overdraft generally as borrowings (current liabilities). If this is the case then any changes in overdraft shall be disclosed under the heading financing activities.

However, if it is repayable on demand AND forms an integral part of entity’s cash management then bank overdrafts are included as a component of cash and cash equivalents.

ASC 230 however, bank overdrafts are simply treated as short-term borrowings and any fluctuation is disclosed as financing activities cash flows. Bank overdrafts are not permitted to be included as a component of cash and cash equivalents.

Taxes paid

IAS 7 requires a separate disclosure of any cash flows relating to income tax. All such cash flows shall be classified as operating activities  cash flows unless such income tax cash flows can be identified with investing and financing activities.

In essence IAS 7 permits the disclosure of income tax cash flows under headings other than operating activities if such cash flows can be specifically identified.

AS 230 requires all of the tax related cash flows to be disclosed as operating cash flows.

However, there is one exception to it. If entity has received any tax benefits arisen due to increase in the value of instruments issued under share-based payments then such cash flows are disclosed as financing cash flows.

Cash flow per share

ASC 230 specifically prohibits disclosure of cash flow per share. ASC 230 further states that cash flow statement is not intended to present the financial performance of the entity as we already have another financial statement for that purpose. Therefore, it is prohibited so that cash flow statement is not considered as an alternative to assess entity’s performance.

IAS 7 contains no such prohibition.

Disclosing non-cash investing and financing activities

ASC 230 requires non-cash investing and financing activities to be reported in a separate schedule which can either be appended to statement of cash flows or included in the notes to the financial statements.

IAS 7 has no such requirements regarding specific schedule summarizing noncash transactions.

Disclosure requirements

ASC 230 has a detailed disclosure requirement.

IAS 7 on the other hand has almost basic disclosure requirements.


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