IAS 7 vs. FAS 95

Statement of Cash

Flow

Julia Zvereva

Iryna Mozil

What

is C

F st

ate

ment?

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

inte

rest

ed

in C

F st

ate

ment

?

Accounting personnel

Potential lenders or 

creditors Potential investorsPotential employees or

contractorsShareholders of the business

His

tory

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.

Obje

ctiv

es

of

IAS

7 a

nd F

AS 9

5

IFRS – IAS 7

US GAAP – FAS 95

Operating Operating

Financing Financing

Investing Investing

Opera

ting

act

ivit

ies

cash receipts from the sale

of goods and the rendering of

services;cash receipts from royalties,

fees, commissions and other

revenue; cash payments to suppliers;

cash payments to and on

behalf of employees;

cash receipts and cash

payments of an insurance

entity, annuities and other

policy benefits; cash payments or refunds of

income taxes ;cash receipts and payments

from contracts held for

dealing or trading purposes.

Inve

stin

g

act

ivit

ies

cash payments to acquire investments

including joint ventures,

futures contracts and

other derivativescash receipts from sales

investments and joint

ventures, futures contracts and other derivativescash advances and loans

made to other parties

cash receipts from the

repayment of advances

and loans made to other

parties

Financi

ng

act

ivit

ies

cash proceeds from

issuing shares or other

equity instruments 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 repayments of

amounts borrowed

Prepara

tion

meth

ods:

Dir

ect

and

indir

ect

meth

ods

in

cash

flow

st

ate

ments

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 G

AA

P (

FAS

95) V

S IA

S 7

IAS 7 Provides greater

flexibilityMust separately disclose on the statementinterest and dividends

received and paidIncome taxesThis is also true for US

GAAP but might require a

separate disclosure if

these items are reported

under multiple categories

under IFRS

US G

AA

P (

FAS

95) V

S IA

S 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 G

AA

P (

FAS

95) V

S IA

S 7

Transaction US GAAP Classificatio

n

IFRS Classificatio

n

Interest Received

Operating Operating or Investing

Dividends Received

Operating Operating or Investing

Interest Paid Operating Financing or Operating

Dividends Paid Financing Financing or Operating

Income Taxes Operating Operating unless specifically associated with financing or investing activity

US G

AA

P (

FAS

95) V

S IA

S 7

Cash Flow Transaction

US GAAP IFRS

Interest Received

operating Operating or investing

Borrowed Long Term Debt

financing financing

Paid dividends financing Financing or operating

Paid suppliers for goods

operating operating

Sold land investing investing

Receipt from sale of goods

operating operating

Paid interest operating Financing or operating

Received dividends

operating Operating or investing

FAS 9

5 V

S IA

S 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.

Thank you for

your attention!