Defining and Measuring Financial Reporting Precision

The precision term has been used often in accounting literature, perhaps because of increased scrutiny of accounting quality, but it has not been defined formally or consistently. Relying on a variety of accounting literature, as well as measurement theory and research in other disciplines, this study develops a thorough definition for precision in accounting and financial reporting, considering both theoretic and measurement perspectives. Precision is normatively defined in this context as being comprised of both reliability (largely utilizing definitions developed by Richardson, et. al. (2005), and pertaining to variance in multiple measurements) and accuracy (pertaining to absolute error levels). While the reliability term has a long history in the field of accounting, and it has been researched extensively, the recent elimination of reliability from the FASB conceptual framework necessitates consideration of how reliability might combine with other meaningful characteristics of accounting information. The normative definitions and measurement techniques developed herein have appeal for both research and professional practice, and are generally supported by the survey results reported.

Defining and Measuring Financial Reporting Precision Academic Article