Description
- Evaluate two (2) major differences between GAAP and IFRS with respect to the statement of cash flows. Give your opinion on which method you prefer. Provide a rationale for your response.
Explanation & Answer
1. Definition of cash and cash equivalents
GAAP - Cash and short-term, highly liquid investments are included. Bank overdrafts are excluded. Restricted cash is not included in cash and cash equivalents. Instead, changes in restricted cash should generally be presented as investing activities.
IFRS - Cash and short-term, highly liquid investments are included. Bank overdrafts are included in certain situations.
2. Statement of cash flows classification
GAAP - More specific guidance is provided on items to be included in each category.
IFRS - More flexibility exists regarding which items are to be included in each category.
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