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A Test of the Reliability of Current Cost Disclosures
Author(s) -
BROWN LAWRENCE D.,
HUEFNER RONALD J.,
SANDERS RALPH W.
Publication year - 1994
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/j.1467-6281.1994.tb00339.x
Subject(s) - reliability (semiconductor) , current (fluid) , accounting , historical cost , test (biology) , business , value (mathematics) , actuarial science , operations management , reliability engineering , computer science , economics , fair value , engineering , electrical engineering , paleontology , power (physics) , physics , quantum mechanics , machine learning , biology
Using data from corporate acquisitions recorded under the purchase method, this research tests the reliability (representational faithfulness) of current cost disclosures. The fair value of property, plant, and equipment recorded by the acquiring company following the acquisition is found to be significantly related to the current cost disclosures made by the acquired company prior to the acquisition. When the data are segmented according to reporting regime, the significant relationship pertains to the SFAS 33 disclosures but not to ASR 190 disclosures of current cost. The study also finds that the results pertain primarily to current cost disclosures made shortly before the acquisition date. Overall, the results support current initiatives for increased departure from historical‐cost approaches to accounting, especially if these measures are made along the lines of SFAS 33 techniques rather than ASR 190 techniques.