Flexibility in cash-flow classification under IFRS: determinants and consequences

Abstract

International Financial Reporting Standards (IFRS) allow managers flexibility in classifying interest paid, interest received, and dividends received within operating, investing, or financing activities within the statement of cash flows. In contrast, U.S. Generally Accepted Accounting Principles (GAAP) requires these items to be classified as operating cash flows (OCF). Studying IFRS-reporting firms in 13 European countries, we document firms' cash-flow classification choices vary, with about 76, 60, and 57% of our sample classifying interest paid, interest received, and dividends received, respectively, in OCF. Reported OCF under IFRS tends to exceed what would be reported under U.S. GAAP. We find the main determinants of OCF-enhancing classification choices are capital market incentives and other firm characteristics, including greater likelihood of financial distress, higher leverage, and accessing equity markets more frequently. In analyzing the consequences of reporting flexibility, we find some evidence that the market's assessment of the persistence of Rev Account Stud (2017)

A cross‐country study on the relationship between financial development and earnings management

“…Second, we employ another CFO measure developed by Gordon, Henry, Jorgensen, and Linthicum (), who point out that CFO could vary with the classification of interest paid, interest received, and dividends received within the statement of cash flow under IFRS (International Financial Reporting Standards). The classification of these items is at the manager's discretion.…”

“…Gordon et al. () claim that their model, based on lagged cash flow, could be more useful in an international setting. Hence, we calculate abnormal CFO using the model below based on Gordon et al.…”

“…Hence, we calculate abnormal CFO using the model below based on Gordon et al. () and take its absolute value (| A_CFO_GHJL |):…”

“… For example, Gordon et al. () express caution about the usage of the abnormal CFO model by Roychowdhury () under IFRS. Pownall and Wieczynska () find that over 17% of firms in the Europe Union had not adopted IFRS in 2012.…”

Fatores determinantes da recuperação judicial considerando os fluxos de caixa das firmas

“…Embora o IAS 7 -Statement of Cash Flows e o CPC 03 assegurem certa flexibilidade das escolhas contábeis envolvendo elementos da DFC, principalmente os juros e dividendos pagos -que podem ser classificados tanto nas atividades operacionais como nas atividades de financiamento -e os juros e dividendos recebidos -que se classificam ora como atividades operacionais, ora como atividades de investimento -, o item 34A do CPC 03: encoraja fortemente as entidades a classificarem os juros, recebidos ou pagos, e os dividendos e juros sobre o capital próprio recebidos como fluxos de caixa das atividades operacionais, e os dividendos e juros sobre o capital próprio pagos como fluxos de caixa das atividades de financiamento(CPC, 2010).Já para o United States Generally Accepted Accounting Principles (USGAAP) a classificação como atividade operacional é obrigatória para os juros pagos e recebidos e para os dividendos recebidos, existindo evidências de que essa classificação é majoritariamente adotada também nos demais países que adeptos às IFRS, inclusive o Brasil(Scherer et al, 2012;Gordon et al, 2017;Silva et al, 2014;Maciel, 2015) -ademais, no país, eventual alternativa diferente deve ser seguida de nota explicativa, de acordo com o CPC 03, razão pela qual não se fará qualquer distinção no que toca aos componentes do FCO das empresas analisadas Por fim, ainda que existam evidências contrárias à eficácia do fluxo de caixa operacional (FCO) como indicador de insolvência, quando isoladamente analisado…”