Briefly describe some of the similarities and differences between GAAP and IFRS with respect to cash flow reporting.

GAAP stands for "generally accepted accounting principles," a collection of accounting principles, methods, and rules that organizations use to create or make financial statements for a given period.

The statement of cash flows is necessary for IFRS, just like it is for U.S. GAAP. An IFRS statement of cash flows has identical content and appearance to one that follows U.S. GAAP. Under U.S. GAAP, the disclosure requirements for the statement of cash flows are more stringent.

Additional similarities include:

1. Companies that prepare financial statements by IFRS must include a statement of cash flows as a component.
2. Both IFRS and U.S. GAAP stipulate that the statement of cash flows should include three main sections, including operating, investing, and financing, as well as changes in cash and cash equivalents.
3. Like U.S. GAAP, IFRS permits the preparation of the cash flow statement using either the indirect or direct method. Companies typically report net cash flows from operating activities using the indirect approach in domestic and foreign contexts.

Notable differences are

(1) According to IFRS, businesses should segregate the total amount of cash flows related to an increase in operational capacity from those needed to sustain operating capacity;

(2) The IFRS and U.S. GAAP definitions of cash equivalents are comparable. One significant distinction is that, under IFRS, in certain circumstances, bank overdrafts are regarded as a component of cash and cash equivalents (which is not the case in U.S. GAAP). Bank overdrafts are categorized as finance operations under U.S. GAAP.