IAS 7 vs. FAS 95 Statement of Cash Flow Julia Zvereva Iryna Mozil

What is CF statement? A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents; breaks the analysis down to operating, investing, and financing activities.

Who is interested in CF statement ?  Accounting personnel  Potential lenders or creditors  Potential investors  Potential employees or contractors  Shareholders of the business

History In the US in 1971, the Financial Accounting Standards Board (FASB) defined rules that made it mandatory under US GAAP to report sources and uses of funds. From the late 1970 to the mid- 1980s, the FASB discussed the usefulness of predicting future cash flows. In 1987, FASB Statement No. 95 (FAS 95) mandated that firms provide cash flow statements. In 1992, the International Accounting Standards Board issued International Accounting Standard 7 (IAS 7), Cash Flow Statements, which became effective in 1994, mandating that firms provide cash flow statements.

Objectives of IAS 7 and FAS 95 IFRS – IAS 7 US GAAP – FAS 95 Operating Financing Investing

Operating activities cash receipts from the sale of goods and the rendering of services; cash receipts from the sale of goods and the rendering of services; cash receipts from royalties, fees, commissions and other revenue; cash receipts from royalties, fees, commissions and other revenue; cash payments to suppliers; cash payments to suppliers; cash payments to and on behalf of employees; cash payments to and on behalf of employees; cash receipts and cash payments of an insurance entity, annuities and other policy benefits; cash receipts and cash payments of an insurance entity, annuities and other policy benefits; cash payments or refunds of income taxes ; cash payments or refunds of income taxes ; cash receipts and payments from contracts held for dealing or trading purposes. cash receipts and payments from contracts held for dealing or trading purposes.

Investing activities cash payments to acquire investments including joint ventures, futures contracts and other derivatives 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 receipts from sales investments and joint ventures, futures contracts and other derivatives cash advances and loans made to other parties cash advances and loans made to other parties cash receipts from the repayment of advances and loans made to other parties cash receipts from the repayment of advances and loans made to other parties

Financing activities cash proceeds from issuing shares or other equity instruments cash proceeds from issuing shares or other equity instruments cash payments to owners to acquire or redeem the entity’s shares cash payments to owners to acquire or redeem the entity’s shares cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings; cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings; cash repayments of amounts borrowed cash repayments of amounts borrowed

Preparation methods: Direct and indirect methods in cash flow statements Direct and indirect methods are different only to the extent of the calculation of cash flows from operating activities, cash flows from investing and financing activities are calculated in the same manner.

US GAAP (FAS 95) VS IAS 7 IAS 7 Provides greater flexibility IAS 7 Provides greater flexibility Must separately disclose on the statement Must separately disclose on the statement interest and dividends received and paid interest and dividends received and paid Income taxes 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 This is also true for US GAAP but might require a separate disclosure if these items are reported under multiple categories under IFRS

US GAAP (FAS 95) VS IAS 7  IAS 7 requires that the cash flow statement include changes in both cash and cash equivalents. US GAAP permits using cash alone or cash and cash equivalents.  IAS 7: Bank overdrafts are also “cash and cash equivalents” (doesn’t work for US GAAP)

US GAAP (FAS 95) VS IAS 7 TransactionUS GAAP Classification IFRS Classification Interest ReceivedOperatingOperating or Investing Dividends Received OperatingOperating or Investing Interest PaidOperatingFinancing or Operating Dividends PaidFinancingFinancing or Operating Income TaxesOperatingOperating unless specifically associated with financing or investing activity

US GAAP (FAS 95) VS IAS 7 Cash Flow Transaction US GAAPIFRS Interest ReceivedoperatingOperating or investing Borrowed Long Term Debt financing Paid dividendsfinancingFinancing or operating Paid suppliers for goods operating Sold landinvesting Receipt from sale of goods operating Paid interestoperatingFinancing or operating Received dividends operatingOperating or investing

FAS 95 VS IAS 7  US GAAP (FAS 95) requires that when the direct method is used to present the operating activities of the cash flow statement, a supplemental schedule must also present a cash flow statement using the indirect method.  The IASC considers the indirect method less clear to users of financial statements. Cash flow statements are most commonly prepared using the indirect method.

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