This paper examines the alternative methods of accounting for investments in company‐owned life insurance (COLI) and the resulting effects on reported net cash flow from operating activities (NCFO). Examples from annual financial reports suggest that these alternative methods potentially result in substantial differences in reported NCFO. Additionally, financial report disclosures do not make transparent the efects of these alternative methods on reported NCFO. This lack of transparency potentially impairs the reliability of investment decisions and the findings of empirical studies that take reported NCFO directly from financial reports without adjustment. Suggestions are offered to make annual financial reports more transparent with respect to COLI transactions.

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