Statement of Cash Flows
Treatment under IFRS
A required component of IFRS financial statements. Three sections: operating activities (direct or indirect method), investing activities and financing activities.
- Option: the direct or the indirect method for operating activities.
- Interest and dividends: classification options across the three sections.
- The cash fund = cash and cash equivalents.
- Disclosure of significant non-cash transactions.
Treatment under German GAAP (HGB)
A statement of cash flows under HGB/DRS 21 is mandatory for consolidated financial statements and for capital-market-oriented entities. Its structure and method are largely analogous to IAS 7.
- § 264 (1) sentence 2 HGB: a statement of cash flows is required for capital-market-oriented corporations (separate financial statements).
- § 297 (1) HGB: a required component of the consolidated financial statements.
- DRS 21: the German Accounting Standard that sets out the detailed rules.
- Structure: operating, investing, financing – analogous to IAS 7.
Key differences
- No HGB requirement in the separate financial statements of non-capital-market-oriented entities; IFRS always requires one.
- Partly different classification of interest and dividends (DRS 21 vs. the IAS 7 options).
- Overall few substantive differences; the structure is largely harmonised.
Example
Worked example
Note: A topic-appropriate comparison without journal entries. Assumptions for the indirect reconciliation (Step 2): net income €500,000, depreciation and amortisation €200,000, increase in inventories €80,000, increase in trade payables €30,000 → cash flow from operating activities €650,000. The statement of cash flows is largely identical under IAS 7 and HGB/DRS 21 – hence "low divergence". All amounts in euros.
Step 1 – Structure: three activity sections
| Section | Example items |
|---|---|
| Operating | receipts/payments from sales, materials, payroll, taxes |
| Investing | purchase/sale of non-current assets, investments |
| Financing | raising equity/debt, repayments, dividends to shareholders |
Step 2 – Operating cash flow (indirect method)
The indirect method is structured identically under both systems; the result is the same.
| Item | IFRS | HGB/DRS 21 |
|---|---|---|
| Net income | 500,000 | 500,000 |
| + Depreciation and amortisation | 200,000 | 200,000 |
| − Increase in inventories | −80,000 | −80,000 |
| + Increase in trade payables | 30,000 | 30,000 |
| Cash flow from operating activities | 650,000 | 650,000 |
Step 3 – Classification of interest and dividends
This is the most practically relevant difference: IAS 7 grants classification options, whereas DRS 21 assigns them more firmly.
| Item | IAS 7 | DRS 21 (HGB) |
|---|---|---|
| Interest paid/received | option (operating, investing or financing) | generally operating, shown separately |
| Dividends received | option (operating or investing) | generally investing |
| Dividends paid | option (operating or financing) | financing |
Step 4 – When it is required
| Financial statements | IFRS | HGB |
|---|---|---|
| Individual, non-listed | required | not required |
| Individual, listed | required | required (§ 264 (1) sentence 2) |
| Consolidated | required | required (§ 297 (1)) |
Key takeaway
The statement of cash flows is the most harmonised area: the three sections, the methods (direct/indirect) and the operating cash flow all agree. The differences that remain concern the classification options for interest and dividends (IAS 7 more flexible than DRS 21) and when the statement is required – IFRS always requires it, HGB only for consolidated and listed individual financial statements.