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The usefulness of accrual-based surpluses in the Canadian public sector

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Title:The usefulness of accrual-based surpluses in the Canadian public sector
Authors:Shadi Farshadfar
Thomas Schneider
Kathryn Bewley
Cash Flows
show 3 moreReliability
Public Sector
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Date Issued:17 Aug 2020
Abstract:This paper investigates how useful accrual-based surpluses are when predicting future cash flows and surpluses in the context of the Canadian public sector. We provide evidence that surpluses incrementally enhance the ability of operating cash flows to predict future cash flows and surpluses. Analysis of our accrual quality model illustrates that in the public sector, accruals accounting is useful in mitigating the noise in operating cash flows. We also find that decomposing surpluses into operating cash flows and accruals enhances the ability of surpluses to forecast future cash flows and surpluses. Therefore, we conclude that aggregate and disaggregated surpluses are positively related to both relevance and reliability. We also find a lack of test results to support the presence of conservatism in the Canadian public sector, and confirm that the usefulness of surpluses in making predictions is independent of selected control factors.
Appears in Collections: 11 Financial Accounting 4: Accounting Issues Related to Labor, Politics, and Environments

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