Introduction and the Framework



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Part of MoU

  • Looking Ahead
  • Part of MoU
  • Phase A complete
  • Phase B – in progress
  • Discussion paper issued in 2009

consistent principles for aggregating information in each financial statement

  • Phase B
  • consistent principles for aggregating information in each financial statement
  • the totals and subtotals that should be reported in each financial statement
  • whether the direct or the indirect method of presenting operating cash flows provides more useful information
  • whether components of other comprehensive income should be reclassified to profit or loss and, if so, the characteristics of the transactions and events that should be reclassified and when reclassification should be made

(taken from Summary of tentative preliminary views (IASB and FASB))

  • Phase B
  • (taken from Summary of tentative preliminary views (IASB and FASB))
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  • Statement of Cash Flows IAS 7

Related standards

  • Statement of Cash Flows
  • Related standards
  • IAS 7
  • Current GAAP comparisons
  • Looking ahead
  • End-of-chapter practice

FAS 95 Statement of cash flows

  • FAS 95 Statement of cash flows
  • FAS 102 Statement of cash flows—exemption of certain enterprises and classification of cash flows from certain securities acquired for resale
  • FAS 104 Statement of cash flows—net reporting of certain cash receipts and cash payments and classification of cash flows from hedging transactions

IAS 1 Presentation of financial statements

  • Related Standards
  • IAS 1 Presentation of financial statements

Objective and scope

  • IAS 7 - Overview
  • Objective and scope
  • Cash flows
  • Reporting operating cash flows
  • Reporting investing cash flows
  • Reporting financing cash flows
  • Specific items
  • Disclosures

IAS 7 objective: to provide a statement to help investors assess the prospects for future cash flows, and to confirm or change their past expectations

  • IAS 7 – Objective and Scope
  • IAS 7 objective: to provide a statement to help investors assess the prospects for future cash flows, and to confirm or change their past expectations
  • Statement provides historical information on the entity’s operating, investing and financing cash flows and how its cash balances have changed in the period as a result

Cash and cash equivalents:

  • IAS 7 – Cash Flows
  • Cash and cash equivalents:
  • Cash on hand and on deposit and “short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value”
  • Can include bank overdrafts if part of cash management activities and balance fluctuates between positive and negative amounts

Operating activities are the principal revenue-producing activities; and those that are not investing or financing activities

  • IAS 7 – Reporting Operating Cash Flows
  • Operating activities are the principal revenue-producing activities; and those that are not investing or financing activities
  • Operating cash flows are important: surplus cash flows needed to invest in increased capacity, pay debt when due, and provide a return to shareholders

Operating cash flows:

  • IAS 7 – Reporting Operating Cash Flows
  • Operating cash flows:
  • Cash received from customers for the sale of goods and provision of services, or on account of royalties, fees, or commissions
  • Cash payments to suppliers for goods and services provided; and to and on behalf of employees for their services
  • Cash received from or paid for financial instruments held specifically for dealing or trading purposes

Two methods:

  • IAS 7 – Reporting Operating Cash Flows
  • Two methods:
  • Direct method
  • Indirect method
  • Either allowed although preference for direct method

Direct method

  • IAS 7 – Reporting Operating Cash Flows
  • Direct method

Indirect method…same entity?

  • IAS 7 – Reporting Operating Cash Flows
  • Indirect method…same entity?

Common adjustments to convert profit or

  • IAS 7 – Reporting Operating Cash Flows
  • Common adjustments to convert profit or
  • loss to cash from operations:
  • Changes in working capital accounts
  • Elimination of non-cash items
  • Elimination of investing and financing items
  • IAS 7 – Reporting Operating Cash Flows
  • What is used…direct method or indirect?
  • KPMG : The Application of IFRS: Choices
  • in Practice – International Financial
  • Reporting Standards, December
  • 2006
  • : see page 10 of 44
  • http://www.kpmg.co.uk/pubs/304574_ifrg.pdf
  • IAS 7 – Reporting Investing Cash Flows
  • Investing activities:
  • “the acquisition and disposal of long-term assets and other investments not included in cash equivalents”
  • Importance:
  • Is the entity maintaining its capacity and increasing the potential for increased operating cash flows in the future?

Examples:

  • IAS 7 – Reporting Investing Cash Flows
  • Examples:
  • Cash payments to acquire property, plant, and equipment; intangibles; and other long-term assets, including capitalized development costs
  • Cash receipts from the disposal of items in (a)
  • Cash payments to acquire debt and equity instruments of other entities or interests in joint ventures; excluding investments held for trading or in cash equivalents
  • Cash receipts from the disposal of items in (c)
  • Cash advances and loans to other parties and their cash repayments
  • Cash payments for and receipts from futures, forwards, options and swaps unless they are held for trading or are classified as financing flows.

Example – Wienerberger AG, Austria

  • IAS 7 – Reporting Investing Cash Flows
  • Example – Wienerberger AG, Austria

Financing activities:

  • Financing activities:
  • “result in changes in the size and composition of the contributed equity and borrowings of the entity”
  • Importance:
  • Financing cash flows change the capital structure of the firm and affect the relative interests of those with claims to future cash flows of the entity

Example – Wienerberger AG, Austria

  • IAS 7 – Reporting Financing Cash Flows
  • Example – Wienerberger AG, Austria

No netting of inflows and outflows

  • IAS 7 – Specific Items
  • No netting of inflows and outflows
  • Interest and dividends received and interest and dividends paid – choice of operating, investing or financing flows as appropriate
  • Income tax cash flows – generally operating flows
  • Non-cash transactions – not included in statement; disclosed instead

Cash flows between an entity and its subsidiaries, associates and joint ventures reported only if accounted for by the cost or equity method

  • IAS 7 – Specific Items
  • Cash flows between an entity and its subsidiaries, associates and joint ventures reported only if accounted for by the cost or equity method
  • Acquisition/loss of control of subsidiary – investing cash flow
  • Exchange rate changes on foreign cash balances – reconciling item at bottom of statement

Operating, investing, financing flows

  • IAS 7 - Disclosures
  • Operating, investing, financing flows
  • Change in cash and cash equivalents
  • Components of cash and cash equivalents
  • Reconciliation of change to amounts on statement of financial position
  • Explanation of significant cash balances not available for use
  • Current GAAP Comparisons
  • Pages 20 and 21 of 164 of
    • http://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf


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