Reviewed by Robert Bloom John Carroll University

This book is an anthology of previously published articles by T. A. Lee on cash flow accounting. As such, the book traces the metamorphosis of Lee’s cash flow model. Lee describes his model this way [p. 63]:

… [It is] a system of financial reporting which de-scribes the financial performance of an entity in cash terms. It is based on a matching of periodic cash inflows and outflows, free of credit transactions and arbitrary accounting allocations. Inflows include cash from trading operations and providers of long-term finance; and outflows include payments for replacement and . . . investment, taxation, interest, and distributions. As such, it is a measurement and reporting system which avoids time lags and distortions. . . .

A prolific writer, Lee has been influenced by the works of many other theorists including Fisher, Canning, and especially

Chambers and Sterling. The author is concerned with the reflection of economic reality to the extent possible in financial reports. He stresses the relevance of past and future cash flows to a broad range of users, arguing that cash flows reflect the liquidity and ability of the firm to survive, and thus management stewardship. Critical of the income concept for its irrelevance and subjectivity, Lee accentuates the relevance and objectivity of past cash flows.

Lee’s model did not emerge in full-blown form. In his later writings, he combines cash flows with net realizable values into a comprehensive reporting model. In the reports he has de-veloped, Lee is concerned with both the realized (past) and unrealized (net realizable value) items. That cash flows and net realizable values are essently allocation-free is a point he makes.

Lee is not especially concerned with very long-run forecasts of cash flows in view of their uncertainty, so only limited attention is given in the book to the problems of discounting future cash flows. He does call for full disclosure of all assumptions underlying the forecasts.

The author is not just an armchair theorist, but also an empiricist of sorts. He has applied his model to a number of business firms, both successful and unsuccessful, and has used cash flows in particular to detect business failure. As he asserts [p. 36]:

. . . [I]t is an act of some irresponsibility to criticize dogmatically or to defend the preparation and use of one type of accounting information [e.g., cash flows] to the complete exclusion of another, until such time as the relevance and utility of each has been ade-quately tested, analysed and proved.

This model has never caught fire. Thus, Lee is not yet advocating the use of his reporting model in lieu of conventional financial statements.

This book does have its shortcomings. Since this is a collection of one author’s work on one subject, there are bound to be redundancies among the selections. That is the case in this book, which could have been considerably leaner without any loss in informational content. Additionally, a number of articles are hard to read because they are poor photocopies, and in some cases the original type is too small. Despite its shortcomings, the book is interesting to read and should be an addition to your bookshelves.