How IFRS 18 changes the cash flow statement
IFRS 18 amended IAS 7: operating profit becomes the indirect method's starting point and interest and dividends get new classification rules.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Most of the attention IFRS 18 has received is about the income statement. The cash flow statement changed too, through an amendment to IAS 7 that arrived with the new standard, and for many clients the cash flow is where the first-year adjustments will be fiddliest. The top line of the operating section moves, and interest and dividends, the items that already cause the most inconsistency between preparers, fall under new classification requirements.
This article explains what the IFRS Foundation says changed, how it differs from the cash flow guidance most preparers learned on, and how to handle the change in the Studio while there is no automatic standards update to prompt you.
The amendment that came with IFRS 18 in April 2024
When the IASB issued IFRS 18 in April 2024, it amended IAS 7 in two ways, according to the IFRS Foundation's IAS 7 page. First, entities must use the operating profit or loss subtotal required by IFRS 18 as the starting point for the indirect method of reporting cash flows from operating activities. Second, the amendment introduced new requirements for the classification of interest and dividend cash flows.
On timing, respect what each page says. The IAS 7 page gives no effective date for these amendments. The IFRS Foundation's IFRS 18 page states that IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027. Treat the cash flow changes as part of the IFRS 18 transition and confirm the date against the amended standard itself.
Operating profit as the new starting point for the indirect method
Under IAS 7 an entity reports operating cash flows by either the direct method, which discloses major classes of gross cash receipts and payments, or the indirect method, which adjusts profit or loss for non-cash items, deferrals and accruals, and items associated with investing or financing cash flows. Nearly every small client uses the indirect method.
IFRS 18 requires two new defined subtotals in the statement of profit or loss: operating profit, and profit before financing and income taxes. The IAS 7 amendment ties the cash flow to the first of these. So the reconciliation will begin at operating profit rather than at a figure further down the income statement.
ACCA's current technical article on cash flow statements, marked "Relevant from September 2025", already describes the indirect method as reconciling operating profit to cash from operations. Many preparers will find the new starting point familiar in practice. The difference that matters is definitional: from adoption, the starting figure must be the operating profit subtotal as IFRS 18 defines it, so any items the client's existing layout treated as operating, but which IFRS 18 places elsewhere, will change the starting number and the adjustments beneath it. That is why the cash flow and the income statement have to be redesigned together; IFRS 18's new subtotals covers the income statement side.
Interest and dividends: new classification requirements to read in the standard
The IAS 7 page states that the amendment introduced new requirements for the classification of interest and dividend cash flows. It does not set them out, and neither should a summary article. Read the amended IAS 7 before deciding where each of the client's interest and dividend flows belongs, and expect that some of the choices preparers have made under the current rules will need to be revisited.
Build a short inventory for each client before the first year of adoption:
- interest received, and on what (bank deposits, loans to related parties, customer finance);
- interest paid, and on what (bank loans, overdrafts, lease liabilities, vehicle finance);
- dividends received from investments;
- dividends paid to shareholders.
For each line, note where it is classified today and where the amended standard requires it to go. The comparison is the work; the inventory makes it quick.
How today's ACCA guidance on interest and dividends compares
ACCA's article describes the classification many preparers apply now. It explains that investing cash flows relate to non-current assets, including investments, and include buying property, plant and equipment, proceeds from disposals, and dividends and interest received. It explains that financing cash flows include new borrowings, repayments of debt including any interest paid, proceeds of share issues and dividends paid to shareholders.
That is a coherent picture: what the client earns on its investments sits with investing, and what it pays its providers of finance sits with financing. Use it as the "before" column of the inventory above. Where the amended IAS 7 requires something different for the client's entity type and activities, the "after" column will show it, and the policy note must change with it. A client whose interest classification moves between sections should say so in the year of change, so the reader is not puzzled by a comparative that looks different. Classification under the current rules is covered more fully in classifying cash flows.
Adjusting the Studio's cash flow lines by hand while there is no standards feed
Achekam does not pull a live feed of standards and regulatory changes; its Standards & Regulatory Updates page shows what its knowledge base records. Nothing in the software will therefore announce that a client's year now falls under IFRS 18, and the firm needs its own watch on effective dates, recorded per client.
In the Studio, the cash flow statement's current-year column is worked out from the change in balances, and staff can type their own figure for any line, which then takes priority over the calculated one. That is the tool for the transition year. Where the starting point or the placement of interest and dividends in the draft does not match what the amended standard requires for the client, type the correct figure on the right line, and record in the working papers why it was typed. Comparatives can come from a person's figures, last year's issued statements or a prior-year set that a person reviews, so the comparative column can be presented on the new basis where the standard calls for it.
Two cautions. A typed figure takes priority over the calculated one, so after any late adjustment to the trial balance, revisit every typed line to see whether it still holds. And always prove the result: opening cash plus the net movement must equal closing cash.
The IFRS Foundation's IAS 7 page summarises how an entity presents the changes in its cash and cash equivalents, and records the amendment that came with IFRS 18. Read it, then the amended standard, before the first client's transition year begins.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
