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

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.