Business, Management and Accounting
7 years ago

Fair value accounting struggles to dominate historical cost convention for assets.

European Journal of Business and Management
Does Fair Value Accounting for Non-Financial Assets Dominate Historical Cost Convention? Empirical Evidence from IFRS and Indian GAAP
Indiael Daniel Kaaya, A. Noorbasha

Paper Summary

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The study looked at how companies in India and Tanzania value their non-financial assets in their financial reports. They found that even though companies are allowed to use fair value measurement, most choose not to. The study showed that the use of fair value for financial statement elements increased under IFRS compared to Indian GAAP, but not for non-financial assets. The researchers suggest that fair value is not widely used for non-financial assets due to factors like asset illiquidity, high cost of estimates, and managers' preference for historical cost. They recommend that regulators and standard setters be cautious about requiring fair value measurement for assets without active markets.