Operating cash flows presentation: The usefulness of the direct method

• Autor(a) principal: Nunes, Vasco Gil Mateus
• Data de Publicação: 2015
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/11638
• topic: Cash flow disclosures; Cash flow statements presentation; Direct method; Demonstração de fluxos de caixa; Apresentação dos fluxos de caixa operacionais; Método direto

The joint project from International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), Financial Statement Presentation (FSP), is currently proposing a requirement that will mandate cash flows statements to be prepared under the direct method. This proposal seems to oppose standard setters against accounting practice as most firms choose to report their operating cash flows disclosures by the indirect method. Nonetheless, IASB and FASB have continuously defended the direct method as a better tool to assess a company’s operating performance. In this study, I challenge this assumption by comparing the predictive ability of the information provided by both methods, using a dataset of firms from 4 different countries. My results support IASB and FASB positions, as I find the direct method to offer better predictions of future operating cash flows. I also find evidence that presentation format has no significant impact on markets, suggesting that financial agents do not acknowledge the usefulness of the direct method, or do not find it attractive in a cost-benefit analysis.