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Annual improvements 2012-2014 cycle – IAS 7

Date recorded:

The IFRS Interpretation Committee (IC) had received several requests regarding the classification of cash flows. Therefore, it requested its Staff to consider how the definitions of operating, investing and financing cash flows in IAS 7 could be made clearer so that greater consistency could be achieved. Currently, cash flows should be classified in accordance with the nature of the activity in a manner that is most appropriate to the business of the entity, in accordance with the definitions in IAS 7.

The Staff has considered the request and recommended the following:

  1. not to amend the definitions operating, investing and financing cash flows in IAS 7 on the basis that this would be too broad for the IC to address and beyond the scope of the Annual Improvements project
  2. not to amend IAS 7 on a piecemeal basis
  3. to amend paragraph 16 of IAS 7 regarding the classification of expenditures which states that ‘only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities’; it was introduced in 2009 as part of the Improvements project at the time (mainly to address IFRS 6) and is believed by some that it could potentially lead to a presumption / secondary principle that cash flows should be classified on the basis of the related items in the balance sheet (vs. on the basis of IAS 7 definitions); the Board did not believe that paragraph 16 read as a secondary principle and did not feel comfortable with changing it only four years since it was amended whilst the reasons for it were still valid.

The Board decided not make amendments to IAS 7 in respect of its definitions of operating, investing and financing activities at this stage.

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