Dealing with IFRS sometimes invites confusion. Let's clear our concepts by putting an article here. More concepts are coming. Stay tune with me.
Let's start with a short topic here. We will be briefing about the difference between US GAAP Classification and IFRS Classification for Cash flows related to income taxes, dividends, and interest. We will be knowing how they are treated differently in these two different systems.
IFRS allows for more flexibility while creating cash flows related to income taxes, dividends, and interest.
1. Taxes: IFRS categorizes Taxes as operating. But according to the activity, it also allows classifying some portion to Investing and Financing specifically identified with Investing and Financing activities. However, US GAAP treats it purely Operating activity.
2. Interest received: Under IFRS, it may be treated as Operating or investing. But US GAAP treats it as an Operating activity.
3. Interest Paid: Under IFRS, it may be treated as Operating or Financing. But US GAAP treats it as an Operating activity only.
4. Dividend Received: Under IFRS, it may be treated as Operating or Investing. But US GAAP treats it as an Operating activity here.
5. Dividend Paid: Under IFRS, it may be treated as Operating or Financing. But US GAAP treats it as a Financing activity only.
Let me give some quick definitions here:
IFRS: Abbreviated as International Financial Reporting Standards, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). IFRS standardized the way of Financial Reporting, so it could be understood across International borders.
Few terms in brief:
- US GAAP: It is an accounting standard adopted by the U.S. Securities and Exchange Commission.
- Cash Flow Statement: The Financial Statement that give a brief report of change in cash of an entity.
- Operating activity: Activities related to the production of income from Continuing Operations.
- Investing: Activities that demand investing in self or other entity.
- Financing: Activities that demand issuing Debt and Equity.
