The Value Relevance of Direct Cash Flows under International Financial Reporting Standards

Clacher, I., Duboisée de Ricquebourg, A. & Hodgson, A. 2013. The Value Relevance of Direct Cash Flows under International Financial Reporting Standards. Abacus, 49, 367-395.

Posted: 5 Oct 2011 Last revised: 20 Sep 2013

See all articles by Iain Clacher

Iain Clacher

University of Leeds - Leeds University Business School (LUBS)

Alan J. Duboisée de Ricquebourg

University of Leeds - Leeds University Business School (LUBS)

Allan Hodgson

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

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Date Written: September 19, 2013

Abstract

This study examines if there has been a change in the value relevance of direct cash flow components since the adoption of International Financial Reporting Standards (IFRS) in Australia. Our results show that for both industrial and extractive firms direct cash flow statements are value relevant under Australian Generally Accepted Accounting Principles (AGAAP) and remain so after the adoption of IFRS. In addition, for industrial firms there is a significant increase in the value relevance of direct cash flows after IFRS, along with an increase in the value relevance of accruals. These results are consistent with the proposition that direct cash flows play a reinforcing role that complements the more complex IFRS accounts. Consequently, if the International Accounting Standards Board (IASB) were to mandate direct cash flow statements it would, in all likelihood, provide users of accounts with a valuable incremental source of hard transaction information.

Keywords: Cash flows and International Financial Reporting Standards, Direct cash flow method, IFRS cash flow value relevance

JEL Classification: G14, M40, M41

Suggested Citation

Clacher, Iain and Duboisée de Ricquebourg, Alan J. and Hodgson, Allan C., The Value Relevance of Direct Cash Flows under International Financial Reporting Standards (September 19, 2013). Clacher, I., Duboisée de Ricquebourg, A. & Hodgson, A. 2013. The Value Relevance of Direct Cash Flows under International Financial Reporting Standards. Abacus, 49, 367-395., Available at SSRN: https://ssrn.com/abstract=1939073 or http://dx.doi.org/10.2139/ssrn.1939073

Iain Clacher

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

Alan J. Duboisée de Ricquebourg (Contact Author)

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

Allan C. Hodgson

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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