Trading in securities and loans – IAS 7 14 includes a number of examples of operating cash flows, including cash 
Consistent with this approach, IAS 7.16(c) and (d) require cash flows which relate to the acquisition or sale of equity or debt instruments of other entities (including interests in joint ventures) to be classified as arising from investing activities, unless the instruments being acquired are considered to be cash equivalents or they are held for dealing or trading purposes. Trading in securities and loans
However, although IAS 7 refers to instruments held for dealing or trading purposes, it does not contain a direct reference to either IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, both of which contain definitions of instruments that are held for trading (the link opens a new page to see the definition).
The question which then arises is whether cash flows related to securities that meet the definition of ‘held for trading’ in IAS 39 and IFRS 9 are required to be classified as arising from operating activities. Trading in securities and loans
The wording in IAS 7 makes no reference to the definitions in IAS 39 and IFRS 9 and, in consequence, it would appear that there is no automatic classification of these cash flows into a particular category.
Considerations:
When considering the appropriate classification of cash flows arising from financial instruments classified as ‘held for trading’ in accordance with IAS 39 and IFRS 9, it is necessary to consider the underlying principle of IAS 7, which is that cash flows should be classified in accordance with the business that is carried on by an entity.
Consequently, a financial institution for which a significant part of its business activities are buying and selling financial instruments would be likely to classify those cash flows as operating.
In contrast, a manufacturing entity that enters into an interest rate swap to hedge interest rate risk arising from a variable rate loan, and applies hedge accounting, would classify the cash flows from the derivative in the same way as the cash flows arising from the position that has been hedged.
Trading in securities and loans
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