The Preference of Direct or Indirect Methods in Preparing the Statement of Cash Flows in Decision Making: An Academic Perspective

Two methods are used when reporting cash flows from operating activities: the direct method or the indirect method, both are acceptable from IAS with a preference of direct method. Thus, this paper examines which method of reporting the statement of cash flows provides useful information the decision makers rely on for decision making purposes. To achieve this aim, participants were selected from academic sector represented by universities professors. The study is based on the conceptual framework: qualitative characteristics of accounting information. To be useful, information must be relevant and represents faithfully what it claims to represent. In order to distinguish more useful financial information from those less useful, enhancing qualitative characteristics were examined. Results show that academic professors provide support for direct method of reporting cash flows over indirect method. The study sought to determine the effect of academic rank on these results. Evidence reveals that full and associate professors endorsed the preference of direct method more than assistant professors and lecturers. These results recommend the legislative bodies and entities to adopt the direct method in preparation the statement of cash flows.