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The distorting effects of acquisitions and dispositions on net operating cash flow

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  • Hugo Nurnberg

Abstract

The cash flow statement is the third principal financial statement in a corporate financial report. It presents the cash inflows and outflows for the period, together with certain net cash flow subtotals, foremost being net cash flow from operating activities (henceforth NCFO). Under the cash flow statement classification rules of both the Financial Accounting Standards Board (FASB Statement No. 95, Statement of Cash Flows, 1987, henceforth FASB-95) and the International Accounting Standards Board (IASB Standard No. 7, Statement of Cash Flows, 1992, henceforth IASB-7), NCFO may increase directly as a result of business acquisitions and dispositions (henceforth acquisitions and dispositions, respectively), although the acquisitions and dispositions themselves are ostensibly reported in the cash flow statement as investing activities. Examples from annual financial reports suggest that this potential distortion of NCFO may be substantial. In general, however, required disclosures do not make transparent these potentially distorting effects on NCFO, especially when there are many acquisitions or dispositions or the disclosures are not timely.

Suggested Citation

  • Hugo Nurnberg, 2006. "The distorting effects of acquisitions and dispositions on net operating cash flow," Accounting Forum, Taylor & Francis Journals, vol. 30(3), pages 209-226, September.
    • Handle: RePEc:taf:accfor:v:30:y:2006:i:3:p:209-226
    DOI: 10.1016/j.accfor.2006.03.002
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    Cited by:

    1. Andreas Charitou & Irene Karamanou & Anastasia Kopita, 2018. "The determinants and valuation effects of classification choice on the statement of cash flows," Accounting and Business Research, Taylor & Francis Journals, vol. 48(6), pages 613-650, September.
    2. Alessandro Mechelli, 2009. "Accounting Harmonization and Compliance in Applying IASB Standards: An Empirical Survey about the First Time Adoption of IAS 7 by Italian Listed Groups," Accounting in Europe, Taylor & Francis Journals, vol. 6(2), pages 231-270, December.
    3. Negrea Laura Georgeta & Matis Dumitru & Mustata V. Razvan, 2011. "Cash Flow Reporting And Creative Accounting," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 597-602, December.
    4. Lorek, Kenneth S., 2014. "Trends in statistically based quarterly cash-flow prediction models," Accounting forum, Elsevier, vol. 38(2), pages 145-151.

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