Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 4

STATEMENT OF CASH FLOWS (IAS 7)

1. OBJECTIVE

1.1 This Standard requires presentation of a statement of cash flows that provides information about the changes during the period in cash and cash equivalents and presents cash flows during the period classified as operating, investing, and financing activities.

2. SYNOPSIS OF THE STANDARD

This Standard provides users with a basis to assess the entity’s ability to generate and utilize its cash and is summarized next.

2.1 The statement of cash flows presents reconciliation between the opening balance and the closing balance of cash and cash equivalents.

2.2 Cash and cash equivalents are

• Investments that are short term (i.e., with original maturities of three months or less);
• Readily convertible into a known amount of cash;
• Subject to an insignificant risk of change in value.

2.3 Cash flows during the period arising from operating, investing, and financing activities are presented separately in the statement of cash flows.

2.4 Cash flows from operating activities represent the principal revenue-producing activities of the entity. The examples of cash flows from operating activities are cash receipts from the sale of goods and the rendering of services, cash payments to suppliers for goods or services, and cash payments to and on behalf of employees.

2.4.1 Cash flows from operating activities are reported using either

• The “direct method” (which is the method recommended by this Standard); or
• The “indirect method.”

2. 4.2 ...