Question

The Statement of Cash Flows provides a great deal of information to investors. Please obtain a copy of a Statement of Cash Flows under IFRS and contrast it with another company’s under GAAP. What are the major differences that you see?

Target GAAP cash flow. Nestle IFRS cash flow

Target 148.44 +0.79 (+0.54%) General Chart News & Analysis Financials Technical Forum Insights Premium Financial Summary Income Statement Balance Sheet Cash Flow Ratios Dividends Earnings TGT Cash Flow Statement Annual Quarterly Collapse All 2020 01/08 2020 01/02 2019 02/11 6 Months 2020 02/05 3 Months 284 12 Months 9 Months 1974 3281 2447 5116 1284 7117 2604 4159 1905 1245 641 178 235 -12 190 192 129 1719 309 862 -744 Period Ending Period Length: Net Income/Starting Line Cash From Operating Activities Depreciation/Depletion Amortization Deferred Taxes Non-Cash Items Cash Receipts Cash Payments Cash Taxes Paid Cash Interest Paid Changes in Working Capital Cash From Investing Activities Capital Expenditures Other Investing Cash Flow Items, Total Cash From Financing Activities Financing Cash Flow Items Total Cash Dividends Paid Issuance (Retirement) of Stock, Net Issuance (Retirement) of Debt, Net Foreign Exchange Effects Net Change in Cash Beginning Cash Balance Ending Cash Balance Free Cash Flow Free Cash Flow Growth Free Cash Flow Yield -1402 -1414 12 -2944 -3027 -557 -2360 -2403 43 -751 7 83 993 1449 -3152 -2386 -450 -332 -995 -662 -699 -682 2463 - 1330 - 1492 -330 -894 -47 2354 4707 1989 1021 -254 -587 1393 767 806 4090 1756

Answer 1

In common parlance, U.S. GAAP is more strict with respect to classifying different items into different cash flows.

The significant difference between U.S.GAAP and IFRS related to the statment of cash flows are summarized in the following table.

transaction	IFRS	U.S.GAAP
Interest received	operating or investing activities	operating activities
interest paid	operating or financing activities	operating activities
dividend received	operating or investing activties	operating activities
dividend paid	operating or financing activities	financing activities
tax paid	mainly operating activities, but a portion of tax expenses can be allocated to investing or financing activities if it can be directly assigned	operating activities
overdraft	included in cash and cash equivalentor financing activites	financial activities
restricted cash	no specific guidance	cash and cash equivalent

As you can see from the above statements of TARGET( US GAAP) and NESTLE (IFRS), IFRS are less restrictive.

both interest and dividends received can be classfied as operating or investing activities. US GAAP to classify them as operating activities only.

Under IFRS, interest paid and dividend paid are classified either as an operating or as a financing activity. On the other hand, according to US GAAP, interest paid is an operating activity and dividend paid is a financing activity.

Have a look also at the taxes paid. US GAAP always classify them as operating activiites,but under IFRS a portion of tax expenses can be alocated to investing or financing activities if it can be directly assingned there.

Again we also see that under IFRS bank overdratf are part of cash equivalents. however under US GAAP, bank over drafts are not cash or cash equivalents and are included in financing activies.