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Did Australian Firms Choose to Switch to Reporting Operating Cash Flows Using the Indirect Method?
Author(s) -
Bond David,
Bugeja Martin,
Czernkowski Robert
Publication year - 2012
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/j.1835-2561.2011.00156.x
Subject(s) - accounting , leverage (statistics) , cash flow statement , financial statement , business , market liquidity , cash flow , operating cash flow , cash , statement (logic) , monetary economics , economics , finance , statistics , audit , mathematics , political science , law
In 2007 Australian accounting standards were amended to allow a choice of presenting operating cash flows using either the direct or indirect method. This study investigates the number of ASX‐listed entities that switched to the indirect format. Our results indicate that between 2007 and 2009 nine companies changed their reporting format. The firms adopting the indirect method have similar leverage, liquidity and performance to industry and size‐matched controls. Given that previous research indicates that the direct method provides superior information for predicting cash flows and performance, our results will be welcomed by financial statement users and the Australian Accounting Standards Board.