This experimental study investigates the connotative meaning of the concept “cash”, as it relates to the cash flow statement, held by the three key parties to the accounting communication process: preparers, auditors and users. Concerns raised in the accounting profession regarding the susceptibility of the cash flow statement to manipulation, coupled with the recent introduction of NZ IAS 7 (cash flow statement) provide the motivation for investigating the potential for miscommunication (either intentional or unintentional) between the main parties to the financial reporting process. The study investigates inter and intra group differences in measured connotative meaning of the old and new definitions of “cash”, and determines the effect of connotative meaning on decision outcomes. Further, the study considers the overall quality of the two definitions, as perceived by the three financial reporting groups.

Three key findings are indicated. The first is that the three financial reporting groups do not share the same cognitive structure in which the meaning of the concept “cash” is held. An important implication is that comparisons between the connotative meanings held by the three financial reporting groups cannot be validly made. Secondly, significant differences in the measured meaning were observed across the two definitions within each of the three subject groups. Thirdly, the decision outcomes for each of the three subject groups were significantly different under the two definitions. Also there was some evidence that the differences in the decision outcomes were linked to the differences in the measured connotative meaning.

These results raised several concerns regarding the potential for miscommunication between the three key parties to the accounting communication process and highlighted the importance of standard-setters assessing the effect on connotative meaning of possible changes in wording to key concepts within the cash flow statement.