Did Australian Firms Choose to Switch to Reporting Operating Cash Flows Using the Indirect Method?

David Bond · Martin Bugeja · Robert M. J. Czernkowski

21 citations0/0 files storedAustralian Accounting Review

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Financial Reporting and XBRL

Abstract

In 2007 Australian accounting standards were amended to allow a choice of presenting operating cash flows using either the direct or indirect method. This study investigates the number of ASX‐listed entities that switched to the indirect format. Our results indicate that between 2007 and 2009 nine companies changed their reporting format. The firms adopting the indirect method have similar leverage, liquidity and performance to industry and size‐matched controls. Given that previous research indicates that the direct method provides superior information for predicting cash flows and performance, our results will be welcomed by financial statement users and the Australian Accounting Standards Board.

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References

2010International Accounting Standards Board 2009Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows and Earnings?2000The Predictive Ability of Direct Method Cash Flow Information 2006Australian Accounting Standards 2002The Usefulness of Direct and Indirect Cash Flow Disclosures 1995An Evaluation of the Decision Usefulness of Cash Flow Statements by Australian Reporting Entities 2011Direct or Indirect Cash Flow Statements?1997Cash flow statements: An international comparison of regulatory positions

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2015Profitability and Financial Sustainability Analysis in Italian Aquaculture Firms by Application of Economic and Financial Margins

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