Comparing US-GAAP and Iran-GAAP operating cash flows to predict future cash flows

Reza Janjani

Journal of Financial Reporting and Accounting, 2015, vol. 13, issue 1, 39-65

Abstract: Purpose - – The main objective of this paper is to compare the ability of US-generally accepted accounting principles (GAAP) operating cash flows versus Iran-GAAP operating cash flows in predicting future cash flows. Design/methodology/approach - – The sample comprises 240 firms (1,200 firm-years) during the period from 2004 to 2008 for which operating cash flows and other variables are available. Cross-sectional and panel data regression models are used in testing the hypotheses. Findings - – This study finds that operating cash flows based on Iran-GAAP are no more effective in predicting future cash flows than those based on USA-GAAP, and the predictive ability of the model is improved by adding the earnings accrual components to the operating cash flows. Originality/value - – The study suggests that the Iranian accounting standard setting committee recommends that the statement of cash flows be prepared based on the three-category model instead of the five-category model in an attempt to converge with the International Financial Reporting Standards. Consistent with Financial Accounting Standards Board and financial analyst recommendations, the results reveal that earnings are a better predictor than cash flows from operations.

Keywords: Earnings; Accruals; Cash flows; Iran-GAAP; US-GAAP (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:v:13:y:2015:i:1:p:39-65

DOI: 10.1108/JFRA-06-2013-0047

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