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IAS 7 — Identification of cash equivalents

Date recorded:

The Committee received a received a request regarding the basis of classification of financial assets as cash equivalents at the date of the acquisition of the investment in accordance with IAS 7. The submitter believed that the classification of investments as cash equivalents on the basis of the remaining period to maturity as at the balance sheet date would lead to a more consistent classification rather than the current focus on the investment’s maturity from its acquisition date.

The staff presented its analysis of the issue which noted that in accordance with paragraph 7 of IAS 7, financial assets held as cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Paragraph 7 further states that for an investment to be held for the 'short-term', it will normally have a maturity of three months or less from the date of acquisition. The staff observed that this three-month criterion in paragraph 7 of IAS 7 promotes consistency between entities in the classification of cash equivalents.

On the basis of the above, the staff recommended that the Committee not develop an interpretation or amendment as it was not considered necessary in light of existing IFRSs. The staff did not expect diversity in practice to develop regarding application of the guidance.

Without any debate, the Committee tentatively agreed with the staff analysis and recommendation. The Committee tentatively decided not to add this issue to its agenda for the reasons set forth in the staff paper. The Committee will reconsider this tentative decision at a future Committee meeting.

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