Question

International Financial Reporting Standards are tested on the CPA exam along with U.S. GAAP. The following questions deal with the application of IFRS.

In a statement of cash flows prepared under IFRS, interest paid Can be classified as ________

Answer 1

Under IFRS, interest paid on the cash flow statement can be classified as either operating or financing activities, providing flexibility for organizations to reflect transactions accurately in the context of their business.

Step-by-step explanation:

In a statement of cash flows prepared under IFRS (International Financial Reporting Standards), interest paid can be classified as either operating or financing activities. This is opposed to U.S. GAAP (Generally Accepted Accounting Principles) which requires that interest paid be classified as an operating activity. Therefore, under IFRS, organizations have the flexibility to choose how to present interest paid in their cash flow statements, based on what they believe will most accurately reflect the nature of the transaction within the context of their business. The decision on classification should be consistent each period to ensure comparability of financial statements over time.