Cash Flow Statement – IFRS vs

IGAAP
A brief on the differences
Introduction
 This topic covers cash flow statements as covered under AS 3 and IAS 7. The
two standards are quite similar. The differences pertain to scope, definitions
and presentation of the statements.

We will cover the differences under the following heads:

 Scope
 Definitions
 Form and Presentation
 Disclosures
Scope
Broadly, AS 3 covers all entities except certain
entities in the SME sector. The cash flow
statement is a mandatory part of the financial
statements.

IAS 7 has no such exemptions.

Definitions
 The definitions cover cash, cash equivalents, cash flows,
operating activites, investing activites and financing activites.

 Cash - AS 3 includes cash on hand and demand deposits with

banks only. IAS 7 has a more extensive definition which
includes bank borrowings (typically in the nature of ODs)
which are repayable by the entity on demand and form an
intergral part of the cash management of the entity.
Definitions
 Cash Equivalents - This definition is similar in both cases - short term ,
highly liquid investments that are readily convertible into known amounts of
cash and are subject to an insignificant risk in changes in value.

 The definition of operating activates, investing activates and

financing activates are consistent across the two standards

 There are a few minor differences - for example, AS 3 specifies that interest
and Dividend paid will be classified as financing activities while interest and
dividends received will be financing activities (in case of non financial
entities). However, there is no such stipulation under IAS 7 which allows
the above to be classified as operating, investing or financial as long as
consistency is maintained across periods.
Form & Presentation
 The approach can be either direct or indirect under both the
standards. The direct method works on data taken straight from
the accounting records while in case of the indirect method, we
commence with the profit or loss and adjusts for items like
depreciation etc. The direct method is encouraged/
recommended by both the standards.

 In the Indian context, while AS 3 allows the choice of either

method, IRDA Act, 1999 mandates insurance companies to use
the direct method while caluse 32 of the SEBI Listing
Agreement requires the presentation to be made in the indirect
format only.
Disclosures

 AS 3 mandates that extraordinary items be disclosed separately under

operating, investing or financing activities. IAS has done away with the
concept of extraordinary items and as such no specific disclosure is
necessary.

 There are certain specific disclosure requirements which are different in

case of acquisitions and disposal of subsidiaries etc.

 There are no specific differences between the two on account of dislosures

which are mandated. However, IAS 7 recommends that certain other
disclosures should be given - cashflows from operating, investing and
financing activities for each of the reportable segments under segment
accounting etc.