Question

In: Accounting

US GAAP and IFRS have different standards for how interest and dividends are shown on the...

US GAAP and IFRS have different standards for how interest and dividends are shown on the Statement of Cash Flows. Which standards do you think are better? Why?

Solutions

Expert Solution

Cash flow statement -

Standards are the defined policies and procedures that are standardized for the preparation of the financial statement. Companies need to follow those standards while preparing the financial statement.

GAAP and IFRS are two different standards that can be followed according to the country specified law and regulation and some standards are useful for the international reporting standards which help companies to be compared internationally.

Under GAAP and IFRS some line items in cash flow treated differently like as follows -

Interest paid and interest received under GAAP is classified as operating activities while under IFRS company has option to treat according to the company where it can be more meaningful like whether company may put Interest paid as financing activity and interest received as investing activities or both of the item can be treated as operating activities.

Other than Interest paid and received there is one more item which are treated differently in GAAP and IFRS.

Under GAAP Dividend paid are treated as financing activities and dividend received treated as operating activity. But under IFRS it can be treated in both the ways dividend received can be consider as investing or operating activities. Likewise dividend paid can be treated as financing or operating activities.

IFRS in the international based standard and which is consider as more appropriate and conceptually proper standard. Rule are properly followed in this standard.

Hence I suggest to follow IFRS to prepare financial statements.


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