1.2 Delimitations of the Study
Despite CPC 03 being applicable to entities in general, the study does not cover financial institutions, which, besides having specific accounting rules, usually classify interest, whether paid or received, www.paydayloanstennessee.com/cities/lexington/ and dividends received as CFO, due to the nature of their operations. This reality is mentioned in IAS 7 and in CPC 03, which state that there is not a classification consensus for other entities. Insurers were also not included in the sample, due to them having their own rules and also due to the activity, which involves reserving funds to deal with risks and claims. That is, there is no variability in the classifications of cash flows of financial institutions and insurers, which justifies their exclusion from the sample.
In this paper, all mentions of dividends (received or paid) also cover interest on own capital (IOC). IOC was introduced in Brazil with Law n. 6,, but it was Law n. 9, that made the payment of IOC deductible (within certain limits) for income tax (IT) purposes, which stimulated companies to use these funds as profit distribution. In any case, in economic terms, IOC is the equivalent of dividends, and for that reason has the same accounting treatment (and also the same possibility for classification in the CFS – CFO or CFI if received IOC, or CFO or CFF if paid IOC).
The research focuses on the consolidated CFS, when applicable, of publicly-traded Brazilian companies, since in IFRS the presentation of individual statements is not required. The individual CFS was only used when there were no consolidated statements. Footnotes were not consulted, since the focus of the research is on the criterion for CFS presentation adopted by Brazilian companies. Brazilian companies, of the Brazilian capital market, which are public or publicly-traded, are understood as those whose stocks are traded on the Sao Paulo Stock Exchange – the Brasil Bolsa Balcao (B3) exchange – and regulated by the Brazilian Securities and Exchange Commission (Comissao de Valores Mobiliarios – CVM).
The period analyzed started in 2008, when disclosure of CFSs became compulsory in Brazil, and concluded in 2014, thus covering seven years of data. It is important to highlight that the use of various periods enables the analysis of different financial and performance situations, independently of the factors that would influence such changes, whether crises in the economy or in the sector, or consequences of internal ple.
CFSs, when used in combination with the other accounting statements, provide information that enables users to evaluate the changes in a company’s assets and financial structure. The objective of CFSs is to provide information regarding the alterations in an entity’s cash flow and cash equivalents accounts, in a particular period, classifying these cash flows as cash flow from operating (CFO), investing (CFI), or financing activities (CFF).
As highlighted in the introduction of this article, the information on cash flows generated by the CFS, according to IFRS and the CPCs, is prepared based on accounting choices regarding the classifications of interest and dividends received or paid. Interest and dividends received can be classified as CFO or CFI and interest and dividends paid can be classified as CFO or CFF. Thus, accounting choice theory (if one exists) is applicable to this context.
2.1 Accounting Choices
Fields et al. (2001, p. 256 Fields, T. D., Lys, T. Z., & Vincent, L.. (2001). Empirical research on accounting choice. Journal of Accounting and Economics, 31(1), 255-307. ) define accounting choice as any decision whose primary purpose is to influence, in form or in substance, the output of the accounting system in a particular way, including not only published financial statements, but also tax declarations and regulatory records. Cabello and Pereira (2015 Cabello, O. G., & Pereira, C. A.. (2015). Efeitos das praticas de tributacao do lucro na effective tax rate (ETR): uma abordagem da teoria das escolhas contabeis. Advances in Scientific and Applied Accounting, 8(3), 356-373. ) state that accounting choice theory studies the how and why behind choices, since regulatory bodies enable various accounting practices for treating the same economic event.