The Decision Usefulness of Financial Accounting Measurement Concepts: Evidence from an Online Survey of Professional Investors and Their Advisors

Abstract:     
In their current framework project, the IASB and the FASB identify decision usefulness as the objective of financial reporting. Unfortunately, accounting research has neither yet come up with an undisputed measure of decision usefulness, nor with a satisfying method to rank competing measurement concepts, such as fair value or historical cost, with regard to their relative decision usefulness. Thus, assessing the decision usefulness of different accounting measurement concepts ultimately poses an empirical question. We provide evidence to this question by surveying an important user group, namely professional investors and their advisors, about their opinions on the decision usefulness of different accounting measurement concepts. We find that our respondents clearly differentiate between mark-to-market and mark-to-model fair values: While they consistently rank mark-to-market fair values as most decision-useful, they generally rank mark-to-model fair values as least decision-useful. Also, the ranking differs across asset classes. Multivariate analyses show that the differentiation between mark-to-model and mark-to-market increases with work experience and with an investing background in the financial services industry.

Number of Pages in PDF File: 47

Keywords: decision usefulness, accounting measurement, fair value, historical cost, mark-to-market, mark-to-model, online survey, institutional investors, financial analysts

JEL Classification: M41, M44, G12, G29

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