In: Accounting
Discuss the differences between the cash flow statement under GAAP and IFRS. What is your opinion on the flexibility offered under IFRS? Defend your opinion.
GAAP (ASC230) | IFRS (IAS7) | |
1 | BANK OVERDRAFT IS NEVER CONSIDERED | BANK OVERDRAFT CAN BE CONSIDERED AS |
AS CASH EQUIVALENTS. CHANGES IN BANK | CASH EQIVALENT WHEN CIRCUMSTANCES | |
OVERDRAFTS ARE TREATED AS FINANCING | WARRANT SUCH USE. IN MANY CASES IT IS | |
CASH FLOWS. | INTEGRAL PART OF CASH MANAGEMENT | |
POLICY | ||
2 | INTEREST RECEIVED OR PAID IS CONSIDERED | INTEREST RECEIVED OR PAID IS CONSIDERED |
AS OPERATING ACTIVITIES | AS OPERATING ACTIVITIES FOR FINANCIAL | |
INSTITUTIONS. FOR OTHERS INTEREST RECEIVED | ||
CAN BE EITHER OPERATING OR INVESTING ACTIVITY | ||
AND INTEREST PAID IS EITHER OPERATING OR | ||
FINANCING. BUT IT SHOULD BE FOLLOWED CONSISTENTLY | ||
3 | DIVIDENDS RECEIVED ARE TREATED AS OPERA | DIVIDENDS RECEIVED ARE OPERATING OR INVESTING AND |
TING ACTIVITIES AND DIVIDENDS PAID FINANCING | DIVIDENDS PAID ARE OPERATING OR FINANCING ACTIVITIES | |
BUT THE PRACTICE MUST BE CONSISTENT | ||
FLEXIBILITY UNDER IFRS : THE OPERATIONS OF ALL ENTITIES WILL NOT BE SAME. THEY DIFFER IN NATURE OF BUSINESS, CASH | ||
MANAGEMT PRACTICES, INVESTMENT PRACTICES. THEREFORE SOME EXTENT OF FLEXIBILITY SHOULD BE GIVEN TO ENTITIES | ||
BUT MEASURES SHOULD BE TAKEN TO FOLLOW THEM CONSISTENTLY. IFRS DOES THE SAME. |