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A Critical Study Regarding The Elaboration Of The Cash Flow Statement Using The Direct Method In Romania

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  • TARAN MOROSAN ADRIAN

    (LUCIAN BLAGA UNIVERSITY OF SIBIU, ROMANIA)

Abstract

The direct method, which is the subject of this study, involves the identification and inclusion in the statement of cash flows of the encashments and the payments made by the company. Although IAS 7 recommends the usage of the direct method to prepare the cash flow statement in order to better satisfy the informational need of information users, many enterprises choose to apply the indirect method, due to its simplicity. On this issue we support the idea that the direct cash flow reporting format, relative to the indirect method, leads to better prediction of future firm performance and has a stronger association with share prices.One important conclusion of our paper is that the decision of the users of accounting information, taking into account the cash flows generated by the economic entity, will not relieve them entirely from the effects of manifestation of the unexpected, but certainly reduces their magnitude. It is our belief that all Romanian companies whose financial statements are addressed to a large number of potential users should prepare comprehensive annual financial statements, whether or not the law requires them.

Suggested Citation

  • Taran Morosan Adrian, 2013. "A Critical Study Regarding The Elaboration Of The Cash Flow Statement Using The Direct Method In Romania," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 255-265, February.
    • Handle: RePEc:cbu:jrnlec:y:2013:v:1:p:255-265
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    References listed on IDEAS

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    1. Gopal V. Krishnan & James A. Largay III, 2000. "The Predictive Ability of Direct Method Cash Flow Information," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(1&2), pages 215-245.
    2. Bogdan Marza & Raluca Sava, 2009. "Value Versus Profit In The Valuation Of Modern Organization Performances," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 44(1), pages 120-127.
    3. Michael Bradbury, 2011. "Direct or Indirect Cash Flow Statements?," Australian Accounting Review, CPA Australia, vol. 21(2), pages 124-130, June.
    4. Gopal V. Krishnan & James A. Largay III, 2000. "The Predictive Ability of Direct Method Cash Flow Information," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(1‐2), pages 215-245, January.
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