Relevance of statement of cash flow in the measurement of corporate financial performance

Abstract

The objective of this paper is to examine the relevance of statement of cash flow in the measurement of corporate financial performance. The methodology is secondary source through library based research and the review of relevant and extant literature, after which conclu-sion and recommendations were preferred. It is evident based on the review of literature that the statement of cash flows is yet to attain adequate relevance in the financial reporting environment due to some inherent problems such as lack of financial accounting literacy on the part of some non-accountant investors, the over-emphasis on the use of profit as a standard measure of performance by regulatory authorities, and limited attention given to the statement in the course of auditing financial statements. It is therefore recommended that the Financial Reporting Council of Nigeria (FRCN) and professional bodies should put stiffer penalties in place to reduce problem of material misstatement, so as to ensure that the cash flow figures as reported present the true and fair view. The basis of preparation of statement of cash flows should make relevant adjustment for inflation through the use of either current purchasing power approach or current cost accounting particularly for industrial organisations during the period of hyperinflation in an economy in order to increase its relevance.