Although it is true that cash flows are factual and not affected by accounting policies, there are a number of areas in which it could be argued that profit is a better measure of performance:

• Profit is accrual based. This has the following implications: – Management can manipulate cash flows to appear better than they are by delaying payments and bringing forward receipts; this is irrelevant to profits. – Certain items relating to the future are recognised in profit but not in cash flows. For example a provision for a liability is recognised in profit or loss so providing indicators of future cash flows.
• Non-cash items may be represented in profit or loss, but are obviously not represented in the statement of cash flows. An example is share-based payments. Although these do not involve the payment of cash, they are still relevant to performance appraisal.
• Due to the way in which cash flows are disclosed, normalisation for exceptional and one-off items is difficult to achieve. In the statement of profit or loss these items are disclosed and so can be excluded in order to assess sustainable performance more accurately.
• Management can time the purchase and sale of non-current assets in order to improve cash flow performance in a given year. The equivalent expense is depreciation; as this is recognised over the life of the underlying asset, there is limited opportunity to take a similar short-term approach to improving performance.
  

Monetary items are those items whose amounts are fixed by contract or otherwise in terms of numbers of currency units (e.g. cedis), regardless of changes in general price levels whiles non-monetary items are those items whose amounts changes with respect to changes in general price level. Examples of monetary items are cash, receivables, payables and loan capital. Examples of non-monetary items are PPE and inventories.

Arguments for:
• Profit is measured in real terms excluding inflationary value increments. This enables better forecasts of future prospects to be made.
• It provides a stable monetary unit with which profit and capital can be valued. It therefore measures the impact on the company in terms of shareholders purchasing power.
• By applying a single price index to all non-monetary assets, subjective valuation of current value accounting is avoided.
• The restatement of asset values in terms of a stable money value provides a more meaningful basis of comparison with other companies.
• CPP accounting is based on historical cost data which is readily verifiable and hence free from subjectivity.

Arguments against:
• The use of indices inevitably involves approximations in the measurement of value.
• CPP does not show the current values of assets and liabilities. Retail price index is not necessarily appropriate for all assets in the business. In addition, the physical capital of the business is not maintained.
• An objection of CPP accounting is raised by some authorities who believe that there is no such thing as generalised purchasing power.
• CPP deals with changes in the general price level and not with changes in prices of individual items.