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This  series of blogs describes how SAP® BusinessObjectsTM Financial Consolidation, Starter Kit for IFRS has been configured to meet International Financial Reporting Standards (IFRS).

It focuses on standards dedicated to:

After a presentation of SAP® BusinessObjectsTM Financial Consolidation, Starter Kit for IFRS in the How Starter kits Meet IFRS requirements – Introduction followed by a focus on How Starter Kits meet IFRS – IAS 1, we will now describe how the starter kit for IFRS is configured to meet IAS 7 requirements.

 

IAS 7 – Statement of cash flows 

Requirements

According to IAS 7, the statement of cash flows should report cash flows during the period classified by operating, investing and financing activities.

An entity should report cash flows from operating activities using either:

  • the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed
  • the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows

IAS 7 does not provide the minimum line items that should be included in the statement of cash flows. However, it specifies that the following amounts should be disclosed separately:

  • interests received (to be classified in a consistent manner from period to period as either operating, investing or financing activities)
  • interests paid (operating, investing or financing)
  • dividends received (operating, investing or financing)
  • dividends paid (operating or financing)
  • income taxes paid (to be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities)
  • cash flows arising from obtaining control of subsidiaries or other businesses (investing activities)
  • cash flows arising from losing control of subsidiaries or other businesses (investing activities)

XBRL Taxonomy

The IFRS XBRL Taxonomy 2009 proposes two presentations for the consolidated statement of cash flows: one according to the direct method (role [510000]) and one according to the indirect method (role [520000]).

In the starter kit

Even if IAS 7 encourages companies to use direct method, operating cash flows are presented using indirect method in the starter kit for the following reasons:

  • It is the most commonly used presentation by European groups
  • Only the indirect method enables automatic calculations of operating cash flows from balance sheet movements in a (relative) simple way.

The statement of cash flows delivered in the starter kit is based on XBRL model, with the following simplifications:

  • The line ‘Adjustments for unrealized foreign exchange losses (gains)’ displayed in XBRL statement is included in ‘other adjustments for non cash items’ in the starter kit.
  • Cash payments to acquire interests in joint-ventures are gathered with cash used in obtaining control of subsidiaries, whereas they are presented separately in XBRL format; this is the same for cash receipts from sales of interests in joint-ventures (gathered with cash from losing control of subsidiaries).
  • Proceeds from government grants, displayed in XBRL model, are not included in the starter kit, as this information is not explicitly required by IAS 20.
  • In financing activities, proceeds from issuing shares and proceeds from issuing other equity instruments are presented on a single line in the starter kit whereas they are presented separately in XBRL model; this is the same for payments to acquire entity’s shares and payments of other equity instruments.

On the contrary, statement of cash flows delivered in the starter kit includes a dedicated line for proceeds from the sale of entity’s own shares that is not displayed in XBRL presentations.

Regarding classification of interests paid and received and dividends paid and received, XBRL taxonomy provides for every choice available. In the starter kit, we have chosen the following classification based on an analysis of illustrative financial statements published by audit firms (PriceWaterhouseCoopers, Deloitte, Ernst & Young and KPMG):

  • Interests paid in operating activities,
  • Interests and dividends received in investing activities,
  • Dividends paid in financing activities.

As for the statement of comprehensive income and statement of changes in equity, data displayed in the statement of cash flows is calculated by consolidation rules.

What’s next

In the How Starter Kits meet IFRS – IAS 21, we will focus on IAS 21 – The Effects of Changes in Foreign Exchange Rates.

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