Statement of Cash Flows: IFRS vs. US GAAP - Accounting Drive (2024)

FAQs

Statement of Cash Flows: IFRS vs. US GAAP - Accounting Drive? ›

Under IFRS Accounting Standards, the primary principle is that cash flows are classified based on the nature of the activity to which they relate. Under US GAAP, the classification of an item on the balance sheet, and its related accounting, often informs the appropriate classification in the statement of cash flows.

The two main distinctions are: Enforcement. GAAP is rule-based, meaning publicly traded US companies are lawfully required to follow its directives. On the other hand, IFRS is standard-based, meaning no one is required to follow its guideline—though it's recommended.

Interest and dividends

classified as operating activities. Dividends received are classified as operating activities. Dividends paid are classified as financing activities.

The statement of cash flows shall report cash flows during the period classified by operating, investing and financing activities. An entity presents its cash flows from operating, investing and financing activities in a manner which is most appropriate to its business.

Under IFRS, balance sheets are presented fixed assets first, while US GAAP reports start with cash. IFRS allows both an order of liquidity and a current-non-current balance sheet format, while US GAAP only accepts the latter.

Answer and Explanation:

cash flow statements. the statements of income. the statements of Shareholder's equity. and the balance sheet.

While GAAP requires gross presentation where deferred tax assets are recognized with a valuation allowance further recognized if it is not more likely than not that the deferred tax assets will be realized, IFRS requires net presentation where deferred tax assets are recognized only to the extent it's probable that ...

GAAP also requires a cash flow statement, which acts as a record of cash as it enters and leaves the company. The cash flow statement is crucial because the income statement and balance sheet are constructed using the accrual basis of accounting, which largely ignores real cash flow.

IAS 7 and Section 230-10-45 (FASB Statement No. 95) permit the direct and the indirect method of reporting cash flows from operating activities. 106 Both encourage the use of the direct method. 107 U.S. GAAP also calls the indirect method the reconciliation method.

Although both cash flow reporting methods meet Generally Accepted Accounting Practices (GAAP) and International Financial Reporting Standards (IFRS), the guidelines encourage the direct method.

What are the two methods of cash flow statements? ›

Direct method – Operating cash flows are presented as a list of ingoing and outgoing cash flows. Essentially, the direct method subtracts the money you spend from the money you receive. Indirect method – The indirect method presents operating cash flows as a reconciliation from profit to cash flow.

Cash flow Statement (CFS) is an additional information provided to the users of accounts in the form of a statement, which reflects the various sources from where cash was generated (inflow of cash) by an enterprise during the relevant accounting year and how these inflows were utilised (outflow of cash) by the entity.

Reduced cash flow: IFRS 16 will require companies to make lease payments on a regular basis, rather than just when they renew or acquire new leases. This can put a strain on a company's cash flow, especially if it has a large number of leases.

IFRS: use method that matches the actual flow of goods. LIFO is prohibited. US GAAP: use method that most clearly reflects periodic income.

IFRS: Requires explicit, unreserved statement of compliance with IFRS in notes to financials. US GAAP: Does not require such a statement. IFRS: Requires disclosure of material judgments/estimates made in applying accounting policies. Generally made in Summary of Significant Accounting Policies.

Here are the key takeaways for similarities between IFRS and US GAAP: Basic Equation: Both US GAAP (FASB) and IFRS (IASB) follow the same fundamental accounting equation: Assets = Liabilities + Equity, which originated 500 years ago in Italy and is crucial for modern financial reporting.

IFRS: apply equity method prospectively from the time at which investor obtains significant influence. Retroactive adjustment is not required. US GAAP: change is done retrospectively for the difference between cost method to equity method.

What is the fundamental difference between IFRS and GAAP? GAAP relies more on specific rules but not the spirit of the rules. GAAP relies more on general principles as well as the spirit of those rules. GAAP relies more on general principles but ignores the spirit of those principles.