Value relevant asset measurement and asset use: Evidence from International Accounting Standard 41

This dissertation is the first to empirically test an asset measurement framework that links asset measurement to asset use. Specifically, I examine whether fair value applied to in-exchange assets and historical cost applied to in-use assets (i.e. measurement consistent with asset use) produces incrementally more value relevant information than when historical cost is applied to in-exchange assets and fair value is applied to in-use assets (i.e. measurement inconsistent with asset use). I test the framework on a sample of 182 international firms from 33 different countries that adopt International Accounting Standard (IAS) 41. IAS 41 prescribes fair value measurement for biological assets, a class of assets previously classified as property, plant, and equipment and measured at historical cost. I find that book value and earnings information is more value relevant when measurement is consistent with asset use as compared to when asset measurement is not linked to asset use. At present, the Conceptual Framework provides little guidance on asset measurement and when certain measurement bases should be used, resulting in inconsistencies across measurement standards. My findings provide evidence supporting a framework for asset measurement, which links asset measurement to asset use. These findings should be of interest to standard setters' and others interested in conceptually based asset measurement.