PRICE LEVEL CHANGES AND FINANCIAL ACCOUNTING MEASUREMENT: EMPIRICAL EVIDENCES FROM NIGERIA
Prince Kennedy Modugu; Chinwuba Okafor and Ohonba Nosa
Department of Accounting
University of Benin, Benin City
ABSTRACT
This study discusses the impact of price level changes on financial accounting numbers. Previous studies on the subject have merely reproduced historical financial statements alongside ‘inflation-adjusted’ financial statements without any scientific methodology and empirical analyses to allow for reliable conclusions. It is this major gap that this study seeks to fill. A sample of ten firms was drawn for period between2001-2010. The OLS regression estimated at nominal and adjusted levels in two separate models showed that both models have a high goodness of fit (R2 ). However, the adjusted estimate exhibited a higher explanatory power and thus shows a better fit. This suggested that adjusted accounting estimates may after all be able to provide better and more realistic insight into a firm’s state of affairs. The study recommends that historical financial accounting information should be presented side-by-side with their corresponding adjusted financial statement to disclose the effect of price level changes. Additionally, the Financial Reporting Council of Nigeria and other regulatory agencies should as a matter of necessity set up a system of accounting for price level changes to enhance the value relevance of accounting information.Keywords: price level changes, value relevance, accounting information, inflation