Year: 2009
Type: article
Abstract: The FASB and the IASB recently released a joint Discussion Paper “Preliminary Views on FinancialStatement Presentation” (International Accounting Standards Board 2008), which contains a major proposalrequiring companies to report operating cash flows using the direct method and it also requires that theindirect method of calculating operating cash flows be disclosed in the notes. This is a departure from currentrules and has generated considerable debate among respondents’ comment letters on the Discussion Paper.This paper adds to this debate by providing some evidence as to the size of the gap users confront when usingthe indirect method to estimate the major operating cash flow elements, such as cash collected fromcustomers and cash paid to suppliers. Using a sample of Australian companies which reported operating cashflows using the direct method, and presented the indirect method in the notes, we find significant differencesbetween reported and estimated figures for both cash collected from customers and cash paid to suppliers.These findings support the discussion paper’s proposal that companies be required to report cash flows usingboth the direct and indirect methods.
Authors: Mark Hughes, Simon Hoy, Brian Andrew
Institutions: University of Canberra, Charles Darwin University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1554928690