Does Replacement Cost Restatement Affect the Intra-Industry Ranking of Firms?

Financial statements are only valuable on a comparative basis. Alternate accounting models provide very different financial statement figures and various industry effects. This may cause a consistent change for all firms in an industry. If so, current cost data will not provide new insight into intra-industry rankings. This issue was studied in 2 steps: 1. Correlation coefficients were calculated to assess the impact of current cost disclosures on the relative rankings of firms within an industry. 2. Factors influencing the level of correlation within an industry were determined. W. C. Norby's (1983) hypothesis is that asset turnover, capital intensity, and flow-through would substantially affect new information provided by current cost disclosures. Using replacement cost data from the Financial Accounting Standards Board and historical cost data from Value Line tapes, this study confirmed Norby's hypothesis. It also confirmed evidence that current cost disclosures may not be worth the cost of providing.