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Ifrs Cash Flow

In: Business and Management

Submitted By deeay
Words 2023
Pages 9
Introduction
Many argue that the cash flow statement is the most important of the financial statements. This actually quite sound of an argument considering that once a business, particularly small and medium enterprises (SMEs), runs out of cash, it usually winds up out of business soon after. One other reason that cash flow statements are important is the comparability they offer. Cash flow statements can be used to clearly assess the health of one business from another largely because across most frameworks they are similar. Even though this is the case, the different frameworks, namely International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), do have notable differences. These differences are significant enough to merit mentioning if only to ensure that investors are able to compare apples to apples. As mentioned earlier cash flow statements under both frameworks are very similar from the format to the content; however, the purpose of this paper is to highlight the similarities and differences by comparing both frameworks under various areas as they relate to cash flow statement preparation.

Statement Preparation Methods
To begin, we should address the specifics of cash flow preparation under IFRS and GAAP.
Under IFRS, businesses are given the option to prepare statement of cash flows either using Direct method or Indirect method. That being said, the IFRS recommends preparing the cash flow statement using direct method but it is not mandatory. A main difference under IFRS is that is does not require businesses to provide schedule of reconciliation between net income and net cash flows from operating activities if the direct method is used to prepare the cash flow statement..
Similarly, GAAP also gives allows for business to prepare cash flow statement using any of the methods mentioned earlier, i.e. Direct or…...

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