At the January 2012 meeting, the IASB discussed two different issues that had been considered by the IFRS Interpretations Committee regarding the classification under IAS 7 Statement of Cash Flows:
- classification of cash payments for deferred and contingent consideration arising from a business combination within the scope of IFRS 3 Business Combinations; and
- (b) classification of cash flows for an operator in a service concession arrangement within the scope of IFRIC 12 Service Concession Arrangements
The IASB decided that before it could decide on whether or not these issues should be addressed through the annual improvements project, it would direct the staff to ask the Committee to look collectively at these two issues, as well as all of the previous IAS 7 issues that the Committee has discussed regarding the classification of cash flows and consider whether these issues could be dealt with collectively.
At the March 2012 meeting the Interpretations Committee the Interpretations Committee noted that two ‘principles of classification’ in IAS 7 Statement of Cash Flows have been used to support the Committee’s decisions (either for issuing an agenda decision or for proposing an annual improvement):
- cash flows in IAS 7 should be classified in accordance with the nature of the activity to which they relate, following the definitions of operating, investing and financing activities in paragraph 6 of IAS 7; and
- cash flows in IAS 7 should be classified consistently with the classification of the related or underlying item in the statement of financial position. This approach could also lead, in some circumstances to splitting transactions into their different operating, investing and financing components.
The Interpretations Committee observed that the primary principle behind the classification of cash flows in IAS 7 is that 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 of operating, investing and financing activities in paragraph 6 of IAS 7.
At its July 2012 meeting the Interpretations Committee discussed an analysis of some fact patterns to illustrate the application of the identified primary principle behind the classification of the cash flows, in an attempt to consider how to develop further guidance on the application of that principle.
At its March 2013 meeting, the Interpretations Committee discussed how the definitions of operating, investing and financing cash flows in IAS 7 could be made clearer and thus could lead to a more consistent application of the primary principle. In this respect it concluded that clarifying the application of the primary principle is a matter that is too broad for the Interpretations Committee to address and, as a consequence, it determined that it could not take a holistic approach to the specific fact patterns recently discussed regarding the classification of cash flows under IAS 7. During its deliberations, the Interpretations Committee observed that several specific requests regarding the classification of cash flows had been considered individually but it thought that amendments to IAS 7 on a piecemeal basis would not be appropriate unless the classification is evident from the current guidance in IAS 7 and an amendment to IAS 7 would make that classification clearer.
The Interpretations Committee also noted that respondents to the IFRS Foundation’s Agenda Consultation (published in July 2011 ) the results of which were summarised in the feedback statement published in December 2012, did not cite IAS 7 or a project specifically related to the statement of cash flows as one that should be prioritised by the IASB. Consequently, the Interpretations Committee does not propose the IASB to further clarify in IAS 7 the application of the primary principle for the classification of cash flows.