Differences exist between the two frameworks for the presentation of the statement of cash flows that could result in differences in the actual amount shown as cash and cash equivalents in the statement of cash flows (including the presentation of restricted cash) as well as changes to each of the operating, investing, and financing activity sections.
US GAAPUnder US GAAP, restricted cash is presented together with cash and cash equivalents on the statement of cash flows. The statement of cash flows shows the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, transfers between restricted cash and unrestricted cash are not presented in the statement of cash flows and direct changes in restricted cash are not disclosed as noncash transactions. Entities are, however, required to reconcile the total amount of cash, cash equivalents, and restricted cash presented on the statement of cash flows to the balance sheet, as well as disclose the nature and extent of the restrictions.
Entities need to consider whether restricted funds meet the definition of cash and cash equivalents. This is to ensure that only those items that are available to meet short-term cash commitments are classified as cash or cash equivalents. Funds that do not meet the criteria should not be presented as part of cash and cash equivalents.
Bank overdrafts are not included in cash and cash equivalents; changes in the balances of bank overdrafts are classified as financing cash flows.
Cash and cash equivalents may also include bank overdrafts repayable on demand that form an integral part of an entity’s cash management. Short-term bank borrowings are not included in cash or cash equivalents and are considered to be financing cash flows.
There is no requirement for expenditures to be recognized as an asset in order to be classified as investing activities.
Only expenditures that result in a recognized asset are eligible for classification as investing activities.
US GAAP is prescriptive on the cash flow classification of certain items. For example, specific guidance exists in areas such as distributions received from equity method investees, debt prepayments and extinguishments costs and sales of trade receivables.
IFRS is generally less prescriptive in the classification of certain items in the statement of cash flows. The general principle is that cash flows are classified in the manner most appropriate to the business.
Dividends paid are required to be classified in the financing section of the cash flow statement and interest paid (and expensed), interest received, and dividends received from investments are required to be classified as cash flows from operations. If the indirect method is used, amounts of interest paid (net of amounts capitalized) during the period must be disclosed.
Interest and dividends received should be classified in either operating or investing activities. Interest and dividends paid should be classified in either operating or financing cash flows. The total amount of interest paid during a period, whether expensed or capitalized, is disclosed in the statement of cash flows.
Taxes paid are generally classified as operating cash flows.Taxes paid should be classified within operating cash flows unless specific identification with a financing or investing activity exists.
If the indirect method is used, amounts of taxes paid during the period must be disclosed.When taxation cash flows are disclosed under different activities, disclosure of the total amount of tax paid in relation to income is required.
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