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This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS.

Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression.

The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections.

An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes.

This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

The study examines the influence of a firm's life cycle on the cash flow classification of Indian firms.

The study employs Dickinson's (2011) cash flow patterns to classify firm years under various life-cycle stages. Cash flow classification is employed to measure a firm's classification shifting (CS) practices. The study includes Indian firms listed on the Bombay Stock Exchange during 2012–2020, an ordinary least squares regression model, a fixed-effect model and a panel corrected with standard error regression method.

Firms face different opportunities and challenges at different stages of the firm's life cycle and therefore adopt cash flow CS. The results show that firms adopt cash flow CS during introduction, growth and decline stage of life cycle either to boost or to reduce operating cash flows.

This study is one of its kind to study the influence of a firm's life cycle on the cash flow classification of Indian firms.

The authors aim at investigating different forms of classification shifting (CS). CS is a novel form of earnings management under which managers misclassify income statement line items and cash flow statement line items with an intent to report favorable operating performance of firms. In particular, the authors check the existence of revenue misclassification, expense misclassification and cash flows misclassification among Indian firms by taking the uniform sample of firms over a single period.

Operating revenue model (Malikov et al., 2018), core earnings expectation model (McVay, 2006) and operating cash flows model (Roychowdhury, 2006) are employed for measuring revenue misclassification, expense misclassification and cash flows misclassification, respectively. The panel data regression models are used to analyze the data for this study.

Based on the sample of 12,870 Bombay Stock Exchange (BSE) listed firm-years observations between 2010 and 2018, we find that, on average, Indian firms are engaged in revenue misclassification rather than expense misclassification to report inflated core earnings. Firms are found to be engaged in cash flows misclassification too. Besides, we find that magnitude of shifting is greater among larger firms. Results also establish that adoption of Ind AS increases the scope of shifting practices. These results are based on several robustness checks.

The results suggest that investors conduct a comprehensive review of the items of financial statements before using them in their portfolio valuation. It suggests auditors check the basis of revenue classification and standard-setting authorities, like ICAI in India, to make more mandatory disclosure requirements for classification of revenues and cash flows. It suggests lenders not to make lending decisions by looking at the operating performance metrics, as CS is the most preferred tool to positively influence the perception of lenders toward operating performance.

It is the first study that investigates different forms of classification shifting jointly for a sample of firms. Most of the earlier studies have examined one kind of classification shifting at a time. This study adds to the existing literature on earnings management by documenting that some firm-specific factors pressurize firms to prefer one form of shifting over another to report inflated core earnings.

The authors examine whether internal corporate governance mechanisms are effective in curbing cash flow manipulation through real activities, misclassification, and timing.

The sample comprises of firms from an emerging market, India with data for years 2004 through 2015. The authors use the methodology given in Roychowdhury (2006).

The authors find that corporate boards in India play an active role in curbing cash flow manipulation through real activities but fail to control cash flow manipulation through misclassification and timing.

The study suggests that corporate boards should pay more attention to the reported cash flow numbers. Regulators can reduce the opportunities available for cash flow misclassification by fixing relevant accounting and governance norms. Auditors can also help by critically focusing on the cash flow classifications presented by management.

This study, to the authors’ knowledge, is the first study that talks about the role of internal governance in a trade-off between different cash flow manipulation techniques.

This study examines the effect of non-audit fees (NAF) provisions on interest payments classification shifting. In addition, we investigate to what extent the NAF economic bonding and interest payments classification shifting is contingent on internal governance and firm financial well-being.

This study employed probit regression using a sample of UK non-financial firms indexed in FT UK (500) over the period from 2009 to 2017.

We find evidence that the economic bonding of NAF between external auditors and their clients is more likely to encourage managers in UK firms to manipulate operating cash flows through interest payment classification shifting. In addition, and interestingly, our results evince that classification-shifting may be the less costly and soft choice of managers in firms with strong governance and charging higher NAF. Furthermore, we show that financially distressed firms associated with their auditors in purchasing non-audit services are more prone to attempting to manipulate and engage in interest payments classification-shifting. Our result did not provide a significant effect of external auditor tenure on the interest payments classification shifting.

Our findings are subject to the following limitations: First, this study uses a composite index to measure the quality of internal corporate governance. It focuses only on the board of directors, but this index does not reflect other internal governance mechanisms. Second, this study is subject to limited study time due to the implementation of key IFRS standards (IFRS 9 Financial Instruments and IFRS 15 Revenue from Contract with Customers) from 2018–2019.

This study was motivated by the UK’s Financial Reporting Council regulators' pressure on the Big 4 audit firms to move more audit time into main auditing activities, reduce cross-selling to audit clients and separate their audit practices by 2024. Overall, we provide new evidence that directs a close spotlight on the threats of NAF that are potentially useful to regulators, shareholders and investors.

It is motivated by the UK’s Financial Reporting Council regulators' pressure on the Big 4 to move more audit firm time into main auditing activities, reduce cross-selling to audit clients and separate their audit practices by 2024. Overall, we provide new evidence that directs a close spotlight on the threats of NAS that are potentially useful to regulators, shareholders and investors.

Provides a comprehensive, critical review of failure prediction with cash flow information since Beaver (1966); and tabulates the methods and cash flow variables used, and the results produced. Describes the literature as “inconsistent and inconclusive” and discusses possible reasons why, e.g. the measurement and diversity of cash flows, lack of model validation, multicollinearity etc. Points out the importance of cash to solvency and dividend payouts; and the limitations it places on creative accounting. Summarizes the reasons for previous inconsistencies and considers possibilities for further research.

The purpose of this paper is to test whether investors take flight to safety when sentiment is low. In other words, do safe firms perform better than risky firms following periods of low sentiment.

Using cash flow volatility and the percent of bullish investors as proxies for risk and investor sentiment the paper tests the relationship between sentiment and returns conditional on risk this performance. Second, a cross-sectional analysis is conducted based on individual firm characteristics and sentiment to explain annual returns.

The paper finds that there is a negative relationship between investor sentiment and the return of risky companies, which is contrary to prior studies. All told, risky companies perform worse following periods of high investor sentiment.

This paper presents evidence contrary to extant literature and that there is no concerted flight to safety. Investor sentiment has little influence on safe stocks.

Reporting cash flows is a relatively recent development in college and university financial reporting. An examination of the purported usefulness of cash flow information to the users of college and university financial statements including an examination of the relationship between accrual-based change in net assets and cash provided by operations found private universities have implemented the cash flow reporting requirements with a relatively high level of compliance employing the indirect format for reporting operating cash flows. The principal areas of deficiency were the reporting of split-interest, restricted gift activities and the required disclosures of cash outflows related to interest and taxes. The discussion of the compliance deficiencies and display findings leads to needed disclosure guidance and future research.

The purpose of this paper is to examine whether firm-level corporate governance measures and regulatory reforms constrain manipulation of operating cash flows, an important firm performance indicator.

The sample comprises firms from an emerging market, India, with data from 2005 to 2011. The authors use the methodology given in the paper by Lee (2012) and multiple regressions.

The authors find that cash flow manipulation is likely to increase with an increase in the controlling ownership. Furthermore, board diligence and better audit fail to curb such manipulation. However, the authors do find that such manipulation has gone down in the recent years, and diligent boards constrain it, possibly due to the recent steps taken by the Indian Government for improving the corporate governance environment in India.

The findings can act as feedback for the regulators and policy makers. Potential investors and analysts may also benefit from the study, since they can be more vigilant about the firms’ cash flow manipulation practices and can demand better governance.

The findings suggest that good corporate governance makes managers substitute earnings management with cash flow manipulation.