REPORTING OF CASH FLOWS UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS VERSUS GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND THE EFFECT ON SECURITY PRICES

Ronald A. Stunda
Valdosta State University

ABSTRACT

This study examines differences in reporting cash flow under the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) statement of cash flow presentation and recognition along with subsequent stock price effect. Findings indicate that there is a higher degree of forecast accuracy of cash flows among European firms. This study also finds that a higher degree of correlation between accounting earnings and stock price exists for GAAP-based U.S. firms than for IFRS-based European firms.
When the information content of cash flows is assessed under the two differing bases, findings show that a higher degree of correlation between cash flow and security returns exists for IFRS-based European firms than for GAAP-based U.S. firms.
Overall results indicate that, with respect to security prices, IFRS-based firms appear to be more cash flow sensitive while GAAP-based firms appear to be more accounting earnings sensitive.

Keywords: Statements of cash flow, International Financial Reporting Standards (IFRS), Generally Accepted Accounting Principles (GAAP), security prices