Main Article Content
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in a setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is consistent with market forces determining the choice. Fair value accounting is used when reliable fair value estimates are available at a low cost and when they convey information about operating performance. For example, with very few exceptions, firms’ managers commit to historical cost accounting for plant and equipment. Our findings contribute to the policy debate by documenting the market solution to one of the central questions in the accounting literature. Our findings indicate that despite its conceptual merits, fair value is unlikely to become the primary valuation method for illiquid non-financial assets on a voluntary basis.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
- Blejer, Mario I. And Adrienne Cheasty, 1991. "The Measurement of Fiscal Deficits: Analytical and Methodological Issues." Journal of Economic Literature, vol 29 (December)
- Congressional Budget Office, 1991. Budgetary Treatment of Deposit Insurance: A Framework for Reform (May). Washington, DC: Congress of the United States.
- Government Printing Office, 1988. Budget Issues: Capital Budgeting for the Federal Government (July); AFMD- 88-44. Washington, DC: U.S. Government Printing Office.
- 1992. Budget Issues, 1991 Budget Estimates: What Went Wrong? (January); OCG-92-1. Washington, DC: U.S. Government Printing Office.
- Broadbent J., Guthrie J. (1992). Changes in the Public Sector: A Review of Recent “Alternative” Accounting Research. Accounting, Auditing & Accountability Journal, vol. 5, no. 2
- The Future Governance of the International Public Sector Accounting Standards Board (IPSASB) PUBLIC CONSULTATION January 2014. Available on-line at www.oecd.org/gov/budgeting/IPSASB-Consultation-Paper.pdf