Open AccessThe Working Capital Basis: Testing The Concealment And Cost Hypotheses
Author(s) -
Karen M. Collins,
Hian Chye Koh
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v3i2.6527
Subject(s) - statement (logic) , cash flow statement , capital (architecture) , cash flow , cost of capital , affect (linguistics) , cash , actuarial science , economics , business , financial statement , econometrics , statistical hypothesis testing , accounting , microeconomics , finance , psychology , statistics , mathematics , profit (economics) , audit , archaeology , communication , political science , law , history
This paper investigates the validity of two hypotheses concerning the use of the working capital definition of funds in the Funds Statement. Statistical tests do not support the hypothesis that the working capital basis is used to conceal potentially damaging information. However, there is evidence that smaller companies avoid switching to the cash basis because of the costs involved. Thus, the FASBs proposed Statement of Cash Flows, if adopted, would affect smaller companies most.