AN EMPIRICAL INVESTIGATION OF DIFFERENT APPROACHES TO ACCOUNTING FOR CHANGING PRICES

摘要

Two of the most frequently proposed approaches to accounting for changing prices are general price level accounting and replacement (or current) cost accounting. In theory, both methods should be combined in order to supply users with the most complete information about changing prices. A combination of the general price level and replacement cost approaches ("price level adjusted replacement cost") can be considered as the theoretical "ideal" of accounting for changing prices. The ideal approach should provide information which is superior to that which is provided by either replacement cost accounting or general price level accounting (or historical cost accounting) alone.;A sample of 322 companies is selected. The procedures for gathering and transforming the data and making the measurements under price level adjusted replacement cost, replacement cost accounting, general price level accounting, and historical cost accounting are explained. Three accounting numbers are used: income A (excluding the monetary gain or loss), income B (including the monetary gain or loss), and total assets. Statistically significant differences between price level adjusted replacement cost and each of the other three methods are identified by using a Multiple Comparisons Test based on Friedman Rank Sums.;Because price level adjusted replacement cost has not received support from any group which is responsible for developing accounting standards, an approach should be selected which is the best surrogate of price level adjusted replacement cost. A decision rule is formulated to determine which method best surrogates price level adjusted replacement cost for each accounting number. Both income A and total assets are best surrogated by replacement cost accounting. Income B, however, can be best surrogated by either replacement cost accounting, general price level accounting, or historical cost accounting.;Based on the measurements for the time periods studied, the conclusion is reached that replacement cost accounting (or current cost accounting) should be implemented if only one (best) approach is deemed necessary in the future. Assuming historical cost accounting continues to be required, supplementary replacement cost (or current cost) disclosures still would seem desirable.