Asset Revaluation and Current Cost Accounting: Uk Corporate Disclosure

Accountants have long disputed whether financial statements should report current

values and the effects of price changes. Indeed, the two kinds of adjustment are often

confused. This study examines the asset revaluation and Current Cost Accounting

(CCA) disclosure decisions of UK firms in 1983, using a costly contracting framework.

We find the two decisions appear to have been taken for very different reasons and to

be largely unrelated, even though the resultant measures overlapped to a non-trivial

degree. The two common factors were that revaluers and CCA disclosers both tended

to be large and to have revalued in the previous two years. Indebtedness was positively

related to revaluation and negatively to CCA disclosure. INTRODUCTION

Countries differ markedly in the extent to which accounting regulations

permit or require companies to report on the effects of changing prices

in their financial statements. In the UK, the Companies Acts have long

permitted companies to make periodic revaluations of fixed assets. The

rapid increase in inflation in the 1970s led to demands that the mixed

reporting of historical costs and current values be replaced or supplemented

by some form of current value or constant price accounting system. This

debate culminated in the introduction of a Current Cost Accounting (CCA)

standard in 1980. The standard