The Handbook to IFRS Transition and to IFRS U.S. GAAP Dual Reporting

5.5 OTHER STRUCTURAL ELEMENTS OF THE STATEMENT OF CASH FLOWS

5.5.1 Activity Format

5.5.1.1 Basic Trichotomy

Both Section 230-10-45 (FASB Statement No. 95) and IAS 7 require the classification of cash flows in three categories: operating, investing, and financing activities. They even place this building block within the objectives and purpose of that statement.157 The IASB Framework already sanctioned this approach as the purpose of a statement of changes in financial position.158 CON 5 timidly mentions these three categories.159

Comment: As the following paragraphs illustrate, both Subtopic 230-10 (FASB Statement No. 95) and IAS 7 are prescriptive concerning which items must be included in each of the three categories. However, IAS 7 seems more flexible in allowing entities to find the classification that is more suitable to their businesses.160

The FASB considers a representation by activity as useful to analyzing financial performance and financing needs, to improving comparability and link related flows.161 IAS 7 highlights the importance of understanding the links among activities.162

5.5.1.2 Allocation versus Predominant Activity

On the other hand, many grey areas arise under this approach, as multiple classifications may sometimes appear to be theoretically sound.163 In those situations, the lack of specific guidance risks undermining comparability.

Planning Point: Although IAS 7 is not so explicit, an entity allocates the cash flows attributable to different ...