Operating cash flow formats: Does format influence decisions?

Klammer, Thomas P.; Reed, Sarah

doi:10.1016/0278-4254(90)90011-n

Cited by 33 publications

(20 citation statements)

References 9 publications

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“…On the other hand, O’Leary (1988) claims that the direct cash flow presentation better represents an entity's cash cycle and is more user‐friendly for managers not possessing substantial accounting knowledge. In an experimental setting, Klammer and Reed (1990) find that in making a loan decision, an analyst with an indirect format cash flow statement produces a different decision than an analyst presented with a direct statement. The direct statement reduces task errors, enhances understanding of the information, and results in a lower variation of the resulting decision.…”

Section: Does the Direct Cash Flow Statement Provide Useful Information?mentioning

confidence: 95%

Direct or Indirect Cash Flow Statements?

Bradbury¹

2011

Australian Accounting Review

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The Australian Accounting Standards Board (AASB) and the Financial Reporting Standards Board (FRSB) have issued a joint proposal that will allow reporting entities to choose between the direct and indirect method of reporting cash flow statements. This evidence presented in this paper indicates that the direct cash flow reporting format, relative to the indirect method, leads to better prediction of future firm performance and has a stronger association with share prices. The AASB and the FRSB have to decide whether to support high quality reporting or harmonisation.

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Section: Does the Direct Cash Flow Statement Provide Useful Information?mentioning

confidence: 95%

Direct or Indirect Cash Flow Statements?

Bradbury¹

2011

Australian Accounting Review

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“…There are related studies showing that reported and estimated cash flow data have different levels of information content for explaining share returns (e.g. Cheng et al, 1997;Krishnan and Largay, 2000), future cash flows (Krishnan and Largay, 2000) and lending decisions (Klammer and Reed, 1990). We acknowledge that while AASB 1026 mandates the direct method for reporting cash flow information, it does not prescribe how the information is to be derived, which may suggest that our sample may contain companies using adjustments to the income statement to derive their reported cash flow information.…”

Section: Accounting and Business Researchmentioning

confidence: 97%

The decision usefulness of reported cash flow and accrual information in a behavioural field experiment

Sharma

Iselin

2003

Accounting and Business Research

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While recent capital market studies tend to reveal some information content in cash flows, their results may not be generalisable to other contexts such as the assessment of solvency. Mandated accounting standards on cash flow emphasise the relevance of cash flow data for assessing solvency. However, there is a paucity of research that specifically investigates this contention. Accordingly, this study investigates the decision usefulness of reported cash flow and accrual information in a behavioural field solvency assessment experiment. Using a two-group between-subjects field experiment design, bankers with at least three years corporate lending experience made solvency judgments using either cash flow cues or accrual cues. We found that, as hypothesised, judgments based on cash flow information were more accurate than judgments based on accrual information. The difference in judgment accuracy was more pronounced for insolvent (failed) companies than for solvent (non-failed) companies. This observation suggests that cash flow information is more decision useful for firms experiencing financial distress. Our results therefore imply that cash flow information has greater decision usefulness than accrual information for assessing corporate solvency and support the mandate of the Stcireaienf qj'CLisk Nows. Our results also support the normative arguments of proponents of cash flow reporting.

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“…Non-professional decision-makers use a sequential search method, in which they read the reports in the order reported (Bouwman, 1982). These studies found that the direct search method results in more accurate answers to computational questions and greater consensus in the credit decision (Klammer and Reed, 1990 and the investment decision (Dull et al, 2003;Hodge et al, 2004).…”

Section: Search Behaviourmentioning

confidence: 99%

The Role of Presentation Format on Decision-makers’ Behaviour in Accounting

Ghani¹,

Laswad²,

Tooley³

et al. 2009

IBR

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The recent increase in researching presentation format area is resulting by the increase in awareness on the importance of presentation format on decision-makers' behaviour. This paper presents a synthesis of prior research on presentation format in the accounting literature which could be used as bases and references for future research. It reviews and evaluates existing accounting literature that examines the linkages of presentation format on decision-makers' behaviour. Finally, future research opportunities in this area are made.

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Operating cash flow formats: Does format influence decisions?

Cited by 33 publications

References 9 publications

Direct or Indirect Cash Flow Statements?

Direct or Indirect Cash Flow Statements?

The decision usefulness of reported cash flow and accrual information in a behavioural field experiment

The Role of Presentation Format on Decision-makers’ Behaviour in Accounting

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