Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Preparation
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Executive summary
In general, the requirements under IFRS and US GAAP are quite similar.
There are some differences with regard to classification among operating,
investing and financing activities. The most notable of these are the
differences in interest and dividends paid and received:
Under IFRS, interest and dividends paid can be classified either as operating or financing
cash flows. Interest and dividends received can be classified either as operating or
investing cash flows.
Under US GAAP, interest paid, interest received and dividends received are all classified as
operating cash flows. Dividends paid are classified as financing cash flows.
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Primary pronouncements
US GAAP
IFRS
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Progress on convergence
In October 2008, the IASB and the FASB issued a joint Discussion
Paper (DP), Preliminary Views on Financial Statement Presentation.
The objective of the Boards joint project was to create a standard
that requires entities to organize financial statements in a manner
that clearly communicates an integrated financial picture of the
entity. There was a staff draft of an exposure draft (staff draft)
issued on this topic on July 1, 2010. The Boards had tentatively
proposed presenting cash flows using the direct method.
In conjunction with the issuance of the staff draft, the Boards
engaged in a targeted outreach program, the principal outcome of
which was a realization that respondents have concerns about the
process of applying a direct method cash flow model. To date, the
Boards have not reached any tentative decisions on the proposed
model and have delayed further effort on cash flow reporting
convergence to focus on convergence projects that are deemed to
have higher priority.
Statement of cash flows
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US GAAP
IFRS
Similar
Similar
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US GAAP
IFRS
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IFRS
Similar
Similar
Similar
Similar
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US GAAP
Does not address bank overdrafts
although they are typically
considered to be liabilities and are
included in the financing section of
the statement of cash flows.
IFRS
Overdrafts that are payable on demand are included
as cash and cash equivalents if considered to be an
integral part of an enterprises cash management.
Bank borrowings (which are considered a financing
activity) are distinguished from bank overdrafts by
asserting that, in the case of overdrafts, the balance
fluctuates from positive to overdrawn and should be
shown as a component of cash and cash
equivalents.
Convergence: The staff draft issued July 1, 2010 specifies that bank overdrafts should be presented in
the debt category of the financing section of the statement of financial position.
Statement of cash flows
Academic Resource Center
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US GAAP
IFRS
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In practice, there may be little practical significance to this difference because IAS 7 requires
separate disclosure of interest paid and received and of dividends paid and received.
Summary of treatment of interest and dividends:
Cash flow classification
Transaction
IFRS
US GAAP
Interest paid
Operating or financing
Operating
Interest received
Operating or investing
Operating
Dividends paid
Operating or financing
Financing
Dividends received
Operating or investing
Operating
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US GAAP
IFRS
Convergence: The staff draft issued July 1, 2010, specifies income taxes would be a separate
section of the balance sheet, the statement of comprehensive income and the statement of cash
flows.
Statement of cash flows
Academic Resource Center
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US GAAP
When using the indirect method of presenting
operating net cash flows, US GAAP
requires a reconciliation from net income
to net cash flows from operating activities
(ASC 230 -10-45-28).
IFRS
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US GAAP
ASC 230-10-45-30 requires that an entity using the direct method of
reporting net cash flows from operating activities must provide (in a
separate schedule) a reconciliation of net income to net cash flows from
operating activities.
This has little practical significance, however, because few enterprises in
the United States use the direct method. The AICPA Accounting Trends
and Techniques 2012 reports that 495 companies of the 500 surveyed in
2011 used the indirect method of presenting operating cash flows.
IFRS
This
reconciliation
is not
required.
Convergence: The Boards had tentatively proposed presenting cash flows using the direct method (including operating cash flows)
and requiring the presentation of an indirect reconciliation of operating income to operating cash flows in the notes to financial statements.
In the Staff Paper presented to the combined Boards at their March 2012 meeting, based on outreach to preparers and users of cash flow
statements, there was little support for the direct method. To date, the Boards have not reached any tentative decisions on the proposed
model and have delayed further effort on cash flow reporting convergence to focus on convergence projects that are deemed to have
higher priority.
Statement of cash flows
Academic Resource Center
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US GAAP
IFRS
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As of
December 31, 2012
As of
January 1, 2012
$ 555,000
$ 674,480
Accounts payable
Accounts receivable
157,800
149,000
Accrued liabilities
Inventory
254,600
269,000
Notes payable
59,000
62,000
875,000
875,000
(120,000)
(175,000)
500,000
450,000
$2,281,400
$2,304,480
Cash
Prepaid expenses
Equipment
Accumulated
depreciation
Land
Total assets
95,000
87,500
45,000
49,800
1,200,000
1,050,000
Common stock
400,000
400,000
Retained earnings
541,400
717,180
$2,281,400
$2,304,480
Total liabilities
and equity
As of
December 31, 2012
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$1,300,500
Interest revenue
5,000
Dividend revenue
4,500
(750,500)
Salary expense
(125,500)
Depreciation expense
(55,000)
(49,800)
(23,000)
(105,420)
$ 195,780
(5,000)
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The following account balances are all zero at both the beginning and end of the year: interest payable,
interest receivable, dividends payable, dividends receivable and income taxes payable.
BDI does not include any interest or dividend cash flows in the operating section of the statement of
cash flows when it prepares its statement under IFRS.
BDI uses the indirect method for the operating section for both US GAAP and IFRS.
As of December 31, 2012, BDI has one bank account balance that is overdrawn. The overdraft amount
is $12,000. BDI has not yet moved this from its cash account into the liabilities section of its balance
sheet. Overdrafts are an integral part of BDIs cash management.
BDI paid income taxes of $7,000 that were attributable to financing activities. It paid income taxes of
$2,000, all attributable to investing activities.
BDI sold land this year with a cost basis of $50,000. It reported a $5,000 loss on the sale.
Statement of cash flows
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Example 1 solution:
BDI
Statement of cash flows
For the year ended December 31, 2012
Operating activities
Net income
$195,780
$55,000
5,000
8,800
Increase in inventory
(14,400)
(3,000)
(7,500)
4,800
Statement of cash flows
244,480
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$45,000
$ 45,000
Financing activities
Borrowings loan repayments
(150,000)
12,000
Payment of dividends
(20,000)
(158,000)
131,480
555,000
$686,480
*Note that the cash balance at December 31, 2012, must exclude bank overdrafts of $12,000.
Statement of cash flows
Academic Resource Center
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BDI
Statement of cash flows
For the year ended December 31, 2012
Operating activities
Net income
$195,780
$(5,000)
Dividend revenue
(4,500)
Depreciation expense
55,000
5,000
Interest expense
23,000
9,000
8,800
Increase in inventory
(14,400)
(3,000)
(7,500)
4,800
$266,980
Statement of cash flows
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$45,000
Receipt of interest
5,000
Receipt of dividends
4,500
(2,000)
$ 52,500
Financing activities
Borrowings loan repayment
(150,000)
Payment of interest
(23,000)
Payment of dividends
(20,000)
(7,000)
(200,000)
119,480
555,000
$674,480
Statement of cash flows
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BDI
Statement of cash flows
For the year ended December 31, 2012
Operating activities
Operating income*
$319,700
$55,000
(96,420)
8,800
Increase in inventory
(14,400)
(3,000)
(7,500)
4,800
$266,980
* Components of operating income include sales, cost of goods sold, salary expense, depreciation expense and other operating expenses.
Statement of cash flows
Academic Resource Center
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$45,000
Receipt of interest
5,000
Receipt of dividends
4,500
(2,000)
$52,500
Financing activities
Borrowings loan repayment
(150,000)
Payment of interest
(23,000)
Payment of dividends
(20,000)
(7,000)
(200,000)
119,480
555,000
$674,480
Statement of cash flows
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Preparation
US GAAP
IFRS
Similar
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Disclosures
Additional disclosure differences not mentioned previously:
US GAAP
IFRS
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