An examination of the relative reliability of changing prices income data

Abstract

Recent studies by researchers, users, preparers, and regulators indicate a renewed interest in the financial reporting of changing prices. The purpose of this paper is to extend prior research in this area and to examine the relative reliability of various changing prices income data. An econometric index of measurement error is utilized to compare the relative reliability of historical cost nominal dollar, historical cost constant dollar, and current cost nominal dollar incomes from continuing operations during the 1979–1983 time period. The results indicate that the current cost nominal dollar income measure was more reliable than the historical cost nominal dollar income measure for several years. These results are consistent with the variety of present proposals to enhance the financial reporting of changing prices in the USA.