The Decision Relevance of Cash‐Flow Information: A Note

Abstract

The release of Approved Australian Accounting Standard AASB 1026, Statement of Cash Flows, in 1992 has made it mandatory for Australian public companies to prepare detailed cash-flow statements under the direct method.While the Standard claims many benefits will flow to financial statements users on the introduction of cash-flow statements (CFSs), the new regulation has been subjected to little empirical investigation in Australia.One noteworthy deficiency in the literature is addressed in this study.Few, if any, comprehensive empirical studies have explored the decision-making functions of the CFS by the actual users of financial reports.The results of this study are based on a survey of 159 financial statement users, of which eighty-three were loan officers and seventy-six were financial analysts in Australia.The overall results indicate strong support for the CFS by these user groups.Furthermore, financial analysts appear to be an equally significant, if not greater, user of the CFS than loan officers.The results have particular relevance to international accounting jurisdictions, notably the U.K. and U.S.A., where a choice between direct and indirect methods for preparing CFSs are currently permitted (cf.McEnroe, 1996).

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