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

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.

Citation

Janjani, R. (2015), "Comparing US-GAAP and Iran-GAAP operating cash flows to predict future cash flows", Journal of Financial Reporting and Accounting, Vol. 13 No. 1, pp. 39-65. https://doi.org/10.1108/JFRA-06-2013-0047