Recognition of Effective Factors on the Relationship between Accruals and Operating Cash Flows

Simultaneously with the prevalence of using the accrual basis for recording financial events in business entities, the use of operating cash or accounting earnings for the assessment of economic performance of business entities and the making optimal economic decisions has become one of the major challenges for investors and users of financial statements of business entities. Nevertheless, it should be noted that the output information from the accounting system is complementary and should be used simultaneously. In other words, if investors regardless of the proportion between the cash and accrual components of earnings, focus solely on accounting earnings or reported cash flows, the stock exchange price goes away from its inherent value. In this paper, with a glance at theory, the relationship between accruals and operating cash flows as an indicator in various evaluations is discussed. Finally, the potential time and economic factors that can change the relationship between accruals and cash flows are reviewed. It can be said that among the components, four factors included cash flow shock, Non-timing related accruals, poor match between revenues and expenses and amount of intangible assets affect the relationship between accruals and operating cash flows.