Reliability and Objectivity of Accounting Measurements

ACCOUNTING is a measurement system which is plagued by the existence of alternative measurement methods. For many years, accountants have been searching for criteria which can be used to choose the best measurement alternative. Generally, it is conceded by most accountants that the purpose for which the data are to be used (usefulness) is an important criterion to be considered in the choice of accounting method.' However, the use or purpose of the data still leaves much to be desired as a criterion since different accounting measurement methods are frequently suggested as being appropriate for a single user or group of users having the same purpose. For example, in a roundtable discussion on "The Measurement of Property, Plant, and Equipment in Financial Statements" the participants agreed that usefulness would be one of the criteria for evaluating different accounting measurement methods. This general criterion " . .. was applied in the sense of usefulness to investors who are willing and competent to read financial statements carefully and with discrimination for the purposes of assistance in arriving at rational investment decisions."I In the above statement, the user group and the purpose for which data will be used are both clearly identified. Yet, according to the moderator and reporter, three alternative measurement methods (for fixed asset accounting) represented by three different groups emerged from the discussion. One group would continue to use historical cost. "Some advocates of historical cost will continue to hold to this view unless they are given convincing evidence that an alternative will produce markedly more useful results."3 A second group favored retention of historical cost, supplemented with statements where the data have been adjusted for general price-level changes. Yet a third group believed that in certain situations acquisition cost should be replaced with a market value or a specific price-index measurement in order to reflect changes in specific prices and assets. Well-informed accountants and businessmen presumably disagree on what is the most useful measurement method even after the purpose for which the data are to be used and the user group are specified. When this happens, the use or purpose of the data is simply too broad and general a criterion to be of much help.