Convexity of Valuation Accuracy Function: Empirical Evidence for the Canadian Economy

Contemporary Accounting Research Volume 11, Issue 2, pages 961–972, Spring 1995

University of Alberta School of Business Research Paper No. 2013-1039

Posted: 2 Jul 2013

See all articles by Shyam Sunder

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems

Date Written: June 1, 1994

Abstract

We investigated the benefits (more accurate valuations) obtained from the use of more specific measures, such as the use of specific price indexes, rather than a general price index, to approximate the current value of historical cost accounting numbers. We found the valuation accuracy function for the Canadian economy to be highly convex; that is, marginal gains in accuracy decline sharply as the specificity of price indexes increases. A few broad price indexes yield a relatively accurate valuation of assets, and little accuracy is gained by using more specific price indexes. These results are consistent with empirical studies conducted in the United States (Hall 1982; Sunder and Way mire 1983; Shriver 1986) and Australia (Tippett 1987).

These results suggest that Canadian standard setters may be able to achieve their objective of getting relatively accurate valuations for industrial assets by adopting a simple and verifiable price index methodology, rather than resorting to costly and complicated computations such as those required by Canadian Institute of Chartered Accountants (CICA) Handbook Section 4510.

Suggested Citation

Sunder, Shyam and Jamal, Karim, Convexity of Valuation Accuracy Function: Empirical Evidence for the Canadian Economy (June 1, 1994). Contemporary Accounting Research Volume 11, Issue 2, pages 961–972, Spring 1995; University of Alberta School of Business Research Paper No. 2013-1039. Available at SSRN: https://ssrn.com/abstract=2279054

Shyam Sunder (Contact Author)

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
178
PlumX Metrics