The Contingent Impact of Firm Size and Managerial Level on Cash Flow Statement Based Evaluations

ABSTRACT

Considerable research to date has focused on external uses and perceptions of the cash flow statement (CFS). However, very little attention has been devoted to investigating internal uses and evaluations of the document. This paper explores the assessments and evaluations of the CFS (using the direct method) by two distinct managerial groups within firms: directors/company secretaries and accounting managers. Furthermore, the study isolated the effects of firm size on CFS ratings. This was necessary because a significant literature indicates that the large firm environment is characterised by a greater degree of decentralisation, which, in turn, affects the decision making behaviour of managers at different levels. Tests of significance and interaction demonstrated that the CFS has particular relevance to the economic decision making of top level management in the large firm environment. The study's findings are useful in an international context, particularly to reporting jurisdictions in the UK and USA where a choice between the direct and indirect method is currently permitted by standard setters. Furthermore, AASB 1026's requirements for the direct method provides the basis for a more controlled contextual study because managerial discretion in the presentation of CFS information is significantly reduced in the Australian reporting context.