Affiliations: [a] School of Accountancy, Arizona State University,
Tempe, Arizona 85287-3606, USA
Correspondence:
[*]
I am grateful for the financial assistance provided by Arizona State
University and the KPMG Peat Marwick Foundation. In addition, I appreciate
the insightful comments of Jim Boatsman, Lanny Chasteen, Rich Flaherty,
Robert Freeman, Paul Frishkoff, and Phil Reckers on earlier drafts of this
manuscript.
Abstract: Many researchers, users, preparers, and regulators of financial and economic data
are advocating the utilization of enhanced valuation models to improve both
macroeconomic and microeconomic analyses. The purpose of this article is to
review and analyze the research on the measurement of current cost (CC) data in
the financial accounting and reporting literatures. This review includes an
analysis of the accounting research on the measurement of CC data for new
assets, used assets, and depreciation. The research suggests that, in general,
an overstatement bias exists in the CC estimates of industrial machinery and
equipment. This bias, however, could be substantially reduced or virtually
eliminated by the adoption of a tax adjusted fundamental value (FV) model. These
findings should be useful to economic researchers and economic policy
institutions in their attempts to measure the capital stock, projected capital
expenditures, and capital consumption adjustments for various firms, industries,
and the economy as a whole.
