Cash inflows and outflows offsetting

IAS 1 Presentation of financial statements paragraph 32 prohibits the offset of assets and liabilities, and income and expense, unless this is specifically required or permitted by another IFRS.

IAS 7 13 – 17 sets out requirements for, and examples of, individual cash inflows Cash inflows and outflows offsettingand outflows that are to be presented separately in respect of operating, investing and financing activities. The offset of cash inflows and outflows is not permitted (except in limited circumstances, that are relevant for financial institutions – see below), meaning that separate (gross) disclosure is required for cash flows, including those related to:

  • The purchase and sale of intangible assets, and items of property, plant and equipment
  • The drawdown and repayment of borrowings
  • The lending of funds to third parties, and the repayments associated with those loans.

These are all cash inflows and cash outflows in respect of non-current assets/liabilities in the financial statements, because these are either long-term assets available for the reporting entity to earn income with (production capacity, research & development in new technology) or long-term liabilities to finance the reporting entity’s funding for growth of its business (funding for acquisitions to accelerate growth). These provide indicators to users of financial statements to judge whether the strategy of the reporting entity also shows in the cash flows of the entity.

– Offsetting cash flows for financial institutions

IAS 7 24 permits the following cash flows of a financial institution to be presented on a net basis:

  • Cash receipts and payments for deposits with a fixed maturity date Cash inflows and outflows offsetting
  • Deposits placed and withdrawn from other financial institutions Cash inflows and outflows offsetting
  • Cash receipts and payments for cash advances and loans. Cash inflows and outflows offsetting

Presenting these cash inflows and cash outflows gross would be virtually meaningless because of the sheer large amounts that will then show, and these types of cash inflows and cash outflows are an integral part of the business model/risk management/liquidity management of financial institutions. This is similar to the differences in showing the sales proceeds of a sale of a plant of a manufacturing entity in investment activities versus the cash outflow to manufacture or acquire assets held for rental to others and subsequently held for sale as described in paragraph 68A of IAS 16 Property, Plant and Equipment are cash flows from operating activities.

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Cash inflows and outflows offsetting

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