Staff paper
Agenda reference: 5
IFRS Interpretations Committee
Date 16 September 2025
Project Statement of Cash Flows and Related Matters
Topic Classification of cash flows
Contacts Juliane-Rebecca Upmeier (jrupmeier@[Link])
Nick Barlow (nbarlow@[Link])
Aida Vatrenjak (avatrenjak@[Link])
This paper has been prepared for discussion at a public meeting of the IFRS Interpretations Committee
(Committee). This paper does not represent the views of the International Accounting Standards Board (IASB),
the Committee or any individual member of the IASB or the Committee. Any comments in the paper do not
purport to set out what would be an acceptable or unacceptable application of IFRS® Accounting Standards. The
IASB’s technical decisions are made in public and are reported in the IASB® Update. The Committee’s technical
decisions are made in public and are reported in IFRIC® Update.
2
Objective of this session
• To give IC members a project update
• To ask IC members for feedback on:
– our initial analysis on the classification issues identified during outreach; and
– specific items for which feedback was that there is inconsistent application of the
classification requirements in IAS 7
3
Questions for IC members
Question 1a) For each example mentioned on slide 12, do you agree with our initial assessment:
a) regarding the underlying factors that might contribute to inconsistent application?
b) that the classification for that example can generally be determined applying IAS 7?
Question 1b) Are there any other factors that might contribute to inconsistent application?
Question 2) For the items listed on slide 13, please provide us with feedback on:
a) which fact patterns are giving rise to inconsistent application and how are the requirements in IAS 7 being applied
to those fact patterns; and
b) whether the item corresponds to any of the four underlying scenarios identified by staff in their initial analysis that
might contribute to inconsistent application (see slide 12)
Question 3) Do you have any feedback on the items raised by other stakeholders (see slide 14)?
Project update
5
Project update
• IASB met in May 2025 to discuss the topics to include and exclude in the project plan, the
approach for topics related to financial institutions and a draft timeline (see May 2025 IASB
Update for more details). IASB tentatively decided it will assess potential ways to improve:
o the disaggregation of cash flow information in the financial statements
o the reporting of information about non-cash transactions in the financial statements
o the transparency of information communicated about cash flow measures not specified
in IFRS Accounting Standards
o the consistent application of requirements to classify cash flows as operating, investing
or financing
o the consistent application of the definition of ‘cash equivalents’
• IASB met in July 2025 to discuss how the requirements for MPMs in IFRS 18 could be
extended to also apply to cash flow measures. The IASB tentatively decided to extend
some of the requirements for MPMs in IFRS 18 to cash flow measures (see July 2025 IASB
Update for more details)
6
Project update (related to classification of cash flows)
• At the May 2025 IASB meeting, the IASB tentatively decided it will assess potential ways to
improve the consistent application of the requirements to classify cash flows as operating,
investing or financing
• IASB also decided it will not aim to redefine the operating, investing and financing
categories in IAS 7
• The IASB expressed some interest in the staff conducting further analysis on whether the
classification of some items for which stakeholders disagree with the classification in IAS 7
could be changed (e.g., for income tax payments)
Feedback on classification
of cash flows
8
Feedback received during outreach with stakeholders from 2024
Feedback indicates that for some cash inflows or outflows…
... there is inconsistent application of the … the classification requirements in IAS 7 are
classification requirements in IAS 7 (leading to applied consistently, but stakeholders
diversity in practice) disagree with the classification (mainly
preparers and users)
• Examples include: • Examples include:
o Deferred and contingent consideration o Lease payments
in a business combination o Income tax payments
o Government grants
Discussed today
Staff analysis on
inconsistent application of
classification requirements
See March 2025 Agenda Paper 20A and Agenda Paper 10
20B for the full list of items mentioned during outreach
Staff analysis of issues identified during outreach (1/2)
• Respondents’ feedback on inconsistent application mostly focused on specific cash inflows
or outflows rather than on the classification requirements themselves
• Additionally, the feedback varied in specificity—ranging from narrowly defined items (e.g.,
government grants related to assets) to broader concepts (e.g., variable consideration)
• Specifically, it is often not clear from the feedback:
o what the underlying fact pattern is;
o what is causing the issue; and
o how pervasive the issue is
• This makes it difficult for us to assess whether the classification of the items identified
during outreach can generally be determined applying the requirements in IAS 7
11
Staff analysis of issues identified during outreach (2/2)
For some of the items identified during outreach…
• We think we have a sufficient understanding of the underlying fact patterns to assess which
factors might contribute to inconsistent application (see slide 12)
• We think their classification can be determined applying the requirements in IAS 7
For other items…
• We need more information on the underlying fact patterns to be able to analyse whether
the issues relate to:
o inconsistent application of the classification requirements in IAS 7; or
o application issues related to other IFRS Accounting Standards (e.g., identification of
whether a sale and lease back arrangement qualifies as a sale applying IFRS 15)
• We would therefore appreciate if IC members could provide us with feedback on the
underlying fact patterns for some of these items (see slides 13–14)
12
Items for which we think we have a sufficient understanding of the
underlying fact patterns
Initial analysis identified four underlying scenarios that might contribute to inconsistent application of the requirements in IAS 7
Cash flows do not meet the Classification of cash flows is linked Initial transaction is a non-cash Classification of cash flows depends
definitions of investing or financing to cash flow classification of related transaction on the principal revenue-producing
activities (resulting in a default items activities
classification as operating)
Example(s): Example(s): Example(s): Example(s):
• Payments related to business • Payments related to derivatives and • Payments related to the purchase of • Acquisition of a long-term asset if
combinations that do not form part of hedges an asset on deferred payment terms lessor’s principal revenue-producing
the consideration that leads to the • Receipt of government grants activities are not leasing
recognition of the acquiree’s net
assets
• Payments to unfunded defined
benefit pension schemes
• Variable consideration
• We think the classification of these • We think the classification of these • Purchase of an asset on deferred • We think it would generally be clear
payments can generally be payments can generally be payment terms is initially a non- whether an activity is part of the
determined applying IAS 7 determined applying IAS 7 (i.e., their cash transaction ‘principal revenue-producing
classification should follow the • When a payment is made it might activities’ of an entity
classification of the cash flows of the not always be clear whether
underlying asset, liability or expense) payment relates to acquisition of an
asset or repayment of a liability
13
Items raised by IC members for which we require further information from
IC members
Item Staff analysis
Receipts and payments related to factoring Slide 17 (Appendix A)
Foreign exchange differences Slide 18 (Appendix A)
Cash flows related to the in-substance purchase of an asset vs. a lease Slide 19 (Appendix A)
Cash flows related to assets held for rental Slide 20 (Appendix A)
14
Items raised by other stakeholders for which we would also appreciate
feedback from IC members (if possible)
Item Staff analysis
Cash flows related to supply chain financing arrangements Slide 21 (Appendix A)
Receipts from a sale and lease back arrangement where the transaction qualifies as a sale Slide 22 (Appendix A)
Cash flows related to shares withheld on employee share options Slide 23 (Appendix A)
Cash flows related to providing financing to customers Slide 24 (Appendix A)
15
Next steps in our analysis
• Feedback from IC members and other stakeholders will help us better understand whether
we have correctly identified the underlying scenarios that might contribute to inconsistent
application of the requirements in IAS 7
• We will then assess whether any of the issues raised during outreach require action.
Specifically, we will consider whether:
– no action is needed, meaning preparers should be able to classify cash flows
consistently by applying IAS 7;
– further action might be needed, such as:
o limited standard setting (e.g., minor wording amendments);
o referring the issue to the IFRS Interpretations Committee; or
o providing illustrative examples to support consistent application
Appendix A—Items for
which we require further
information
17
Receipts and payments related to factoring
• There is no specific guidance in IAS 7 on how to classify cash flows that relate to factoring
• Examples of possible fact patterns in a factoring arrangement are:
– the entity has derecognised the receivable and the customer pays any outstanding amounts to the factor (that is, there is a
single cash inflow to the entity from the factor);
– the entity has not derecognised the receivable and the customer pays any outstanding amounts to the entity, which the entity
subsequently passes on to the factor (that is, there is a cash inflow to the entity from the factor, a cash inflow to the entity
from the customer and a cash outflow from the entity to the factor); or
– the entity has not derecognised the receivable and the customer pays any outstanding amounts to the factor (that is, there is
a single cash inflow to the entity from the factor)
• From the feedback received, it is unclear to us for which specific fact patterns inconsistent application of the classification
requirements in IAS 7 was observed
18
Foreign exchange differences
• It is unclear to us why ‘foreign exchange differences’ were mentioned by stakeholders as an example for inconsistent application of
the classification requirements in IAS 7 because foreign exchange differences are not themselves cash flows but are presented
separately in the statement of cash flows in accordance with paragraph 28 of IAS 7
• Specifically, it is unclear to us whether the feedback relates to foreign exchange differences as a result of:
– translation of receipts or payments from the transaction currency into the functional currency; or
– translation of amounts from the functional currency to the presentation currency
19
Cash flows related to the in-substance purchase of an asset vs. a lease
• Paragraph 16(a) of IAS 7 lists ‘cash payments to acquire property, plant and equipment, intangibles and other long-term assets’ as
cash flows from investing activities and paragraph 17(e) of IAS 7 lists ‘cash payments by a lessee for the reduction of the
outstanding liability relating to a lease’ as cash flows from financing activities
• Applying IAS 7, preparers should generally be able to appropriately classify cash flows related to an in-substance purchase of an
asset and cash flows related to a right-of-use asset (and corresponding lease liability) in accordance with IFRS 16 Leases as either
cash flows from investing activities or cash flows from financing activities, applying paragraph 16(a) and paragraph 17(e) of IAS 7
• From the feedback received, it is unclear to us whether:
– there is inconsistent application of the classification requirements in IAS 7; or
– the issue relates to something other than classification of the cash flows (for example, whether the issue relates to how to
determine whether the transaction is an in-substance purchase of an asset or a lease in accordance with IFRS 16)
20
Cash flows related to assets held for rental
• Paragraph 14 of IAS 7 states that cash payments 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 and that
cash receipts from rents and subsequent sales of such assets are also cash flows from operating activities
• Applying IAS 7, preparers should generally be able to appropriately classify cash flows related to assets held for rental as cash
flows from operating activities
21
Cash flows related to supply chain financing arrangements
• There is no specific guidance in IAS 7 on how to classify cash flows that relate to supply chain financing arrangements. Rather,
paragraph 14(c) of IAS 7 lists ‘cash payments to suppliers for goods and services’ as cash flows from operating activities and
paragraph 17(d) of IAS 7 lists ‘cash repayments of amounts borrowed’ as cash flows from financing activities
• However, the Agenda Decision Supply Chain Financing Arrangements—Reverse Factoring, published in December 2020 explains
that payments related to supply chain financing arrangements can be classified either as cash flows from operating activities or
cash flows from financing activities, depending on the nature of the underlying liability
• Specifically, the Agenda Decisions explains that if the entity considers the related liability to be a trade or other payable that is part
of the working capital used in the entity’s principal revenue-producing activities, the entity presents cash outflows to settle the
liability as arising from operating activities in its statement of cash flows. In contrast, if the entity considers that the related liability is
not a trade or other payable because the liability represents borrowings of the entity, the entity presents cash outflows to settle the
liability as arising from financing activities in its statement of cash flows
• From the feedback received, it is unclear to us whether:
– there is inconsistent application of the classification requirements in IAS 7 (including inconsistent application of the Agenda
Decision published in December 2020); or
– the issue relates to something other than classification of the cash flows (for example, whether the issue relates to how to
determine whether the transaction is a supplier finance arrangement)
22
Receipts from a sale and lease back arrangement where the transaction
qualifies as a sale
• Applying paragraph 16(b) of IAS 7, preparers should generally be able to appropriately classify receipts from a sale and lease back
arrangement as cash flows from investing activities if the transaction qualifies as a sale in accordance with IFRS 15 Revenue from
Contracts with Customers
• From the feedback received, it is unclear to us whether:
– there is inconsistent application of the classification requirements in IAS 7; or
– the issue relates to something other than classification of the cash flows (for example, whether the issue relates to how to
determine whether the transaction qualifies as a sale)
23
Cash flows related to shares withheld on employee share options
• There is no specific guidance in IAS 7 on how to classify cash flows related to shares withheld on employee share options. Rather,
paragraph 17(b) of IAS 7 lists ‘cash payments to owners to acquire or redeem the entity’s shares’ as cash flows from financing
activities1
• Applying IAS 7, preparers should generally be able to appropriately classify cash flows related to cash-settled share-based
payment transactions as cash flows from financing activities
• From the feedback received, it is unclear to us whether:
– there is inconsistent application of the classification requirements in IAS 7; or
– the issue relates to something other than classification of the cash flows (for example, whether the issue relates to the
distinction between cash-settled share-based payment transactions and equity-settled share-based payment transactions in
accordance with IFRS 2 Share-based Payment)
1In addition, paragraph 14(f) of IAS 7 lists ‘cash payments or refunds of income taxes’ as cash flows from operating activities (unless they can be
specifically identified with financing and investing activities)
24
Cash flows related to providing financing to customers
• It is unclear to us whether the feedback relates to entities whose principal revenue-producing activities are ‘providing financing to
customers’ or to other entities
• Operating activities are defined as the principal revenue-producing activities of the entity and other activities that are not investing
or financing activities (paragraph 6 of IAS 7). Paragraph 14 of IAS 7 states that cash flows from operating activities are primarily
derived from the principal revenue-producing activities of the entity
• In contrast, paragraph 16(e) and paragraph 16(f) of IAS 7 lists ‘cash advances and loans made to other parties (other than
advances and loans made by a financial institution)’ and ‘cash receipts from the repayment of advances and loans made to other
parties (other than advances and loans of a financial institution)’ as cash flows from investing activities
• Applying IAS 7, preparers should generally be able to appropriately classify cash flows related to providing financing to customers
as either cash flows from operating activities or cash flows from investing activities
• We understand that issues might have arisen in the past regarding the classification of interest paid or interest received because of
the classification options included in IAS 7. These options have been removed with IFRS 18 Presentation and Disclosure in
Financial Statements. Accordingly, we assume that no further action is required regarding the classification of interest paid or
interest received
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