Under the indirect method of reporting cash flow from operations, a decrease in deferred tax liabilities is deducted from net income. This adjustment is necessary because it represents a reduction in the liability, which implies that less cash was retained than what was reported in net income. Conversely, an increase in deferred tax liabilities would be added back to net income. This aligns with the principle of reconciling net income to cash flow from operating activities by adjusting for non-cash items and changes in working capital.

Key Concept: The indirect method adjusts net income for non-cash items and changes in working capital to arrive at cash flow from operating activities.