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arginal gains in accuracy of valuation from increasing the specificity of price indexes : empirical evidence for the Canadian economy

University of British Columbia

In this paper we present empirical estimates of marginal gains in accuracy of asset valuation from increasing the specificity of price indexes used to adjust Historical Cost Financial Statements. The empirical evidence strongly suggests that the accuracy function for the Canadian economy is highly convex. This implies that the marginal gain in accuracy of valuation declines sharply as the number and specificity of price indexes used for valuation increases. These findings are potentially valuable for Auditors, Academics and Regulatory agencies who are involved in the debate on selection of asset valuation rules. The results are of particular relevance for selection of asset valuation rules when it is costly to use finer measurement methods. CICA handbook (Section 4510) presently allows companies to choose from several alternative methods for adjusting historical prices. In this paper we show the benefits obtained by using finer data, so that companies can made a decision as to the amount of resources they should invest to obtain finer data.

Text

2010-05-08

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http://hdl.handle.net/2429/24501

Business Administration

University of British Columbia

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