Principles of Asset Recognition when Future Benefits are Uncertain

56 Pages Posted: 20 Jun 2016 Last revised: 29 May 2019

See all articles by Xu Jiang

Xu Jiang

Duke University

Chandra Kanodia

University of Minnesota - Carlson School of Management

Gaoqing Zhang

University of Minnesota - Twin Cities - Department of Accounting

Date Written: May 2019

Abstract

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

Jiang, Xu and Kanodia, Chandra and Zhang, Gaoqing, Principles of Asset Recognition when Future Benefits are Uncertain (May 2019). Available at SSRN: https://ssrn.com/abstract=2797488 or http://dx.doi.org/10.2139/ssrn.2797488

Xu Jiang

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Chandra Kanodia

University of Minnesota - Carlson School of Management ( email )

321 19th Avenue South
674 Management and Economics
Minneapolis, MN 55455
United States
612-624-6880 (Phone)
612-626-7795 (Fax)

Gaoqing Zhang (Contact Author)

University of Minnesota - Twin Cities - Department of Accounting ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://https://carlsonschool.umn.edu/faculty/gaoqing-zhang

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