Principles of Asset Recognition when Future Benefits are Uncertain
56 Pages Posted: 20 Jun 2016 Last revised: 29 May 2019
Date Written: May 2019
We study asset recognition principles in terms of the level of uncertainty in the future benefits to such assets. From a real effects perspective, we establish that there is a threshold of uncertainty beyond which it is better to leave assets unmeasured and comingled with operating profits. We investigate the determinants of that threshold and derive the surprising result that the higher the expectation of future benefits the lower should be the level of uncertainty in future benefits that is required to measure and recognize assets. The risk-return tradeoff for reporting choices is quite different from the risk-return tradeoff for making investment decisions.
Keywords: Investment Measurements, Managerial Myopia, Real Effects
JEL Classification: G31, G34, M41
Suggested Citation: Suggested Citation