Asset Use and the Decision-Usefulness of Fair Value Measurement: Evidence from IAS 41
46 Pages Posted: 25 Nov 2014 Last revised: 23 Sep 2016
Date Written: September 22, 2016
I investigate whether asset use influences the decision-usefulness of fair value measurement. Specifically, I examine whether fair value is more decision-useful for in-exchange assets relative to in-use assets. I test the hypothesis on a sample of international firms that adopt International Accounting Standard 41 and my findings suggest that asset use does influence the usefulness of fair value measurement. Specifically, in cross-sectional tests I find that the fair value of biological assets and the associated unrealized gains and losses are more decision-useful when the assets derive value in-exchange, relative to when the assets derive value in-use. In an additional analysis where I use the firm as its own control, I find that the decision-usefulness of in-use firms’ book value and income declines following the adoption of IAS 41, confirming the cross-sectional findings. At present, the Conceptual Framework provides little guidance on asset measurement, resulting in inconsistencies across measurement standards. Thus, my findings may provide insight to standard setters and those interested in conceptually-based asset measurement.
Keywords: Asset Measurement; Fair Value; IAS 41; Biological Assets; Conceptual Framework
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