Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 20 IFRS owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control An entity shall present, either in the statement of changes in equity or in the notes, the amount of dividends recognised as distributions to owners during the period, and the amount per share (IAS 1.107). U.S. GAAP 2.5 Statement of cash flows IFRS U.S. GAAP Relevant guidance: IAS 7; IFRS 5 Relevant guidance: ASC 230 and 830 There are no exemptions under IFRS for providing a statement of cash flows. Cash comprises cash on hand and demand deposits (IAS 7.6). Cash equivalents are 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 (IAS 7.6). An investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition (IAS 7.7). Bank borrowings are generally considered to be financing activities. However, in some countries, bank overdrafts which are repayable on demand form an integral part of an entity's cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn (IAS 7.8). Unlike IFRS, U.S. GAAP provides an exemption for providing a statement of cash flows as follows (ASC 230-10-15-4): • Defined benefit pension plans and certain other employee benefit plans • Highly liquid investment companies that meet specified criteria The statement of cash flows shows changes in cash and cash equivalents (i.e. short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.) Generally, only investments with original maturities of three months or less are cash equivalents (ASC Master Glossary, “Cash Equivalents”). Unlike IFRS, bank overdrafts are included in liabilities and excluded from cash equivalents. Changes in overdraft balances are financing activities. © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 21 IFRS The statement of cash flows shall report cash flows during the period classified by the following (IAS 7.10): • Operating activities • Investing activities • Financing activities U.S. GAAP Similar to IFRS (ASC 230-10-45-10). IAS 7.18 allows the cash flows from operating activities to be disclosed by either the direct method (i.e. major classes of gross cash receipts and cash payments are disclosed) or the indirect method (i.e. profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows) IAS 7.20 provides for two alternative presentations for the indirect method. Cash flows arising from the following operating, investing or financing activities may be reported on a net basis (IAS 7.22): • Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity • Cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short Cash flows from interest and dividends received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as either operating, investing, or financing activities (IAS 7.31). Interest paid and interest and dividends received are usually classified as operating cash flow for a financial institution (IAS 7.33). Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities (IAS 7.35-.36). IAS 7.39 requires the aggregate cash flows arising from obtaining and losing control of subsidiaries or other businesses to be presented separately and classified as investing activities. ASC 230 allows either the direct or indirect method but in any case requires that the financial statement presentation include a reconciliation of net cash flow from operating activities to net income. If the indirect method is used, interest paid (net of amounts capitalized) and income taxes paid must be disclosed (ASC 230-10-45-28 through 45-32 and 50-2). Receipts and payments should generally be shown gross. Certain items may be presented net because their turnover is quick, the amounts are large, and the maturities are short. Items that qualify for net reporting are cash flows pertaining to (a) investments (other than cash equivalents), (b) loans receivable, and (c) debt, provided that the original maturity of the asset or liability is three months or less (ASC 230-10-45-7 through 45-9). Interest and dividends received and interest paid are classified as operating activities. Dividends paid are classified as financing activities (ASC 230-10-45-14 through 45-17). Taxation cash flows are classified as operating activities (ASC 230-10-45-17). Cash flows relating to the purchase or disposal of a business are classified as investing activities (ASC 230-10-45-12 through 45-13). © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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