IAS 7 vs ASC 230: what are the differences?
For the IFRS rules in full, see IAS 7 explained and the indirect method.
| Item | IAS 7 (as amended by IFRS 18), most companies | ASC 230 |
|---|---|---|
| Interest paid | Financing | Operating |
| Interest received | Investing | Operating |
| Dividends received | Investing | Operating |
| Dividends paid | Financing | Financing |
| Bank overdrafts repayable on demand | Included in cash and cash equivalents if integral to cash management | Financing activities; not part of cash |
| Restricted cash | Included only if it meets the definition of cash equivalents | Included with cash in the reconciliation, with disclosure |
| Indirect method starting point | Operating profit, from 2027 | Net income |
Companies with a specified main business activity, such as banks, classify interest and dividends under IFRS according to where the related income and expenses sit in the income statement. Before IFRS 18, IAS 7 allowed a choice for interest and dividends, so older IFRS statements vary.
One company, two cash flow statements
| CU million | IAS 7 with IFRS 18 | ASC 230 |
|---|---|---|
| Cash from operations before interest and dividends | 354 | 354 |
| Interest paid | Financing | (66) |
| Interest received | Investing | 12 |
| Dividends received | Investing | 8 |
| Net cash from operating activities | 354 | 308 |
| Net cash used in investing activities | (200) | (220) |
| Net cash used in financing activities | (136) | (70) |
| Net increase in cash | 18 | 18 |
The same company reports operating cash flow of 354 under IFRS and 308 under US GAAP, so free cash flow measures built on operating cash flow differ by 46. The figures follow the cash flow example in the IFRS 18 cash flow changes.
Why does the classification matter?
Free cash flow is usually calculated as operating cash flow less capital expenditure, so a company reporting under IFRS 18 will show higher free cash flow than an identical US company simply because interest paid sits in financing. Lenders' covenants, management bonuses and valuation models that use operating cash flow need to state which basis they use, and analysts comparing companies across frameworks should move interest and dividends to a common basis first.
What did IAS 7 allow before IFRS 18?
A free choice: interest and dividends received could be operating or investing, and interest and dividends paid could be operating or financing, applied consistently. Many IFRS companies chose operating for interest paid, matching US GAAP, so the gap with US reporters will widen when IFRS 18 removes the choice from 2027.
Are there other differences?
- Taxes: both classify income taxes as operating unless they can be specifically identified with investing or financing, and both require the amount of taxes paid to be disclosed.
- Specific US classification rules: ASC 230 sets out classifications for items such as debt prepayment costs, contingent consideration payments and insurance proceeds, where IAS 7 relies on general principles.
- Supplier finance: both now require disclosures about supplier finance arrangements, under IAS 7 and ASC 405-50, so readers can see how much of the payables balance has been financed.
Where to go next
See IFRS 18 vs US GAAP and IFRS vs US GAAP: the key differences.
Need help applying the standards?
Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.
Questions people ask
Where is interest paid classified under IFRS and US GAAP?
Under IAS 7 as amended by IFRS 18, in financing activities for most companies; under ASC 230, in operating activities.
Where are dividends received classified?
In investing activities under IFRS for most companies, and in operating activities under US GAAP.
Can bank overdrafts be part of cash under US GAAP?
No. They are financing activities. IFRS allows overdrafts repayable on demand to be included in cash and cash equivalents when they are integral to cash management.
Is total cash flow different under IFRS and US GAAP?
No. The classification of individual cash flows differs; the net change in cash is the same.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.
Related guides
More in IFRS vs US GAAP
This guide is general information. It is not tax or legal advice for your situation.