ABSTRACT
In SFAS #89 [1986] the FASB, by a vote of 4-3, abandoned requiring SFAS #33 [1979] current cost/constant dollar information for public firms of a certain size, presumably because the evidence suggested that after six years no one seemed to be using it. In particular, security analysts said that they did not use the data, and efforts to find some sort of link between the information and stock prices or abnormal returns were uneventful. Use and usefulness, however, are not necessarily synonymous. In this study a simple model is forged to suggest certain hypotheses as to how the data might be used by, and prove useful to: (a) managers, and (b) various outsiders with a legitimate interest in the firm. These hypotheses are then tested using annual cross-sectional data for some 300-450 firms for the five years 1980-1984. Intelligent interpretation of these data suggest that SFAS #33 information is probably not subject to substantial measurement errors, and that analysis of the information can prove useful in assessing and monitoring the performance of different firms within an industry -- in ways which are not only impossible using historical cost/nominal dollar data, but which actually point to the specific weaknesses of using such data for performance measurement. The study suggests that the FASB decision to abandon SFAS #33 as a requirement may have been premature, 358and that as time passes and more perspective is gained, the decision should perhaps be reconsidered.
