A note on the using of accounting databases

This paper identifies potential data problems of using accounting databases. To examine data errors, two commonly used accounting databases -Value Line and Compustat are compared in their qualitative and quantitative features. Data is examined using seven variables over a period of eleven years. Differences found in the data for 1981 are further analyzed by comparing sample data to figures directly drawn from financial statements. Substantial data differences are found. Most of which are attributable to definitional discrepancies and others to direct measurement error. For example, 39.5% of the depreciation figures and 23.2% of the inventory numbers were discrepant by more than 1% of the absolute value of the measure. The paper also comments on the selection and usage of accounting databases and discusses shortcomings that should be expected in using accounting databases. Finally, recommendations are presented for dealing with these problems to preparers of databases as well as standard setters.