Doctoral Dissertations

Date of Award

6-1982

Degree Type

Dissertation

Major

Business Administration

Major Professor

Keith G. Stanga

Committee Members

Hartwell C. Herring, Jan R. Williams, Sophronia W. Ward

Abstract

The Financial Accounting Standards Board has designated relevance and reliability as the primary decision-specific qualities of accounting information. The objective of this study is to present empirical evidence concerning whether a trade-off between relevance and reliability exists. This objective is accomplished by analyzing the relevance and reliability of various information items as perceived by several groups associated with accounting information.

A questionnaire was developed to assess the perceived relevance and reliability of accounting information as the accounting measurement basis is changed. Using a matching criterion, thirty information Eleven of the items were selected for the questionnaire. thirty items were presented on the basis of historical cost, eleven were presented on a constant dollar basis, and eight were presented on a current cost basis. These thirty items were used to form thirty-one pairs from which the changes in relevance and reliability could be analyzed.

The survey groups were selected to sample the primary users of financial information (investors and creditors), and the preparers of financial information. Responses were received from 59 chartered financial analysts, 113 chief commercial loan officers, and 112 chief financial officers. The responses received were arranged into ordered contingency tables for each information pair (thirty-one tables for each of the three groups). Each contingency table was analyzed to determine the relationship between relevance and reliability perceived to exist by each group.

The chi-square test on each contingency table revealed that for ninety-one of the ninety-three pairs, a relationship was perceived to exist between relevance and reliability. On each information pair determined to have a relationship, the Kendall's Tau, was examined to establish the direction of the relationship. In all ninety-one of the cases, a positive Tau, value was found, which indicates a direct relationship between relevance and reliability. A direct relationship means that an increase or decrease in one characteristic is associated with a similar change in the other characteristic. Therefore, the conclusion of this study is that the groups surveyed do not perceive a trade-off between relevance and reliability when the accounting measurement basis is changed.

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