Skip to content

CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I

Under IFRS, which statement about the choice between the direct and indirect methods of presenting cash flow from operating activities is most accurate?

IFRS allows either the direct or the indirect method for operating cash flow, and the total is the same under both. The method changes only how the figure is presented, not its amount. No rule requires one method based on profitability or on reconciling to net income.

  1. AEither method is permitted, and both produce the same total operating cash flow.Correct
  2. BThe direct method is required for entities with positive operating cash flow.
  3. CThe indirect method is required because it reconciles to net income.

Explanation

IFRS permits either method for operating cash flow, although the direct method is encouraged. The method affects only presentation, so total cash flow from operations is identical. The other two statements describe requirements that do not exist in IFRS.

Did you get it right without looking?

One question tells you little. A timed set on Analyzing Statements of Cash Flows I shows your real accuracy, how long you take and where you lose marks.

Practise Analyzing Statements of Cash Flows IFree diagnostic mock

More Analyzing Statements of Cash Flows I questions