Skip to main content

Asset use and the relevance of fair value measurement: evidence from IAS 41


This study investigates whether asset use influences the relevance of fair value measurement. Specifically, I examine whether fair value is more relevant when it is applied to in-exchange assets than when it is applied to in-use assets. I test the framework on a sample of international firms that adopt International Accounting Standard 41. Using a difference-in-differences approach, I find that earnings information is significantly more relevant when firms measure in-exchange biological assets at fair value, but book value and earnings information is significantly less relevant when firms measure in-use biological assets at fair value. Consistent with these results, in cross-sectional analyses I find that investors discount the fair value of in-use biological assets and their associated unrealized gains and losses relative to the fair value of in-exchange biological assets. At present, the Conceptual Framework provides little guidance on asset measurement, resulting in inconsistencies across measurement standards. Thus, my findings may provide insight to standard setters and those interested in conceptually based asset measurement.

This is a preview of subscription content, access via your institution.


  1. More recently, the notion that assets derive value in-use or in-exchange is present in several accounting standards (see IASB 2009, ¶ME30-¶ME32; FASB 2011, Accounting Standards Codification (ASC) 820–10-35-10E).

  2. For example, under U.S. Generally Accepted Accounting Principles (GAAP), firms are required to measure investment property at cost, while under International Financial Reporting Standards (IFRS), firms can choose to measure investment property at fair value (KPMG 2012). Similarly, under IFRS, PP&E can be recognized at cost, but biological assets, a class of assets belonging to PP&E, must be recognized at fair value (KPMG 2012).

  3. Both firms are examples from my sample.

  4. Whether the separability criteria of the asset influence the way the asset is used by the firm, and thus the relevance of the fair value information, is a limitation of this study. I thank an anonymous reviewer for this comment.

  5. This holds true to the extent that the unobserved factors do not vary systematically across periods.

  6. Specifically, the IASB amended IAS 41 with respect to bearer plants, a type of in-use biological asset.

  7. My sample predates the IASB’s amendment to IAS 41.

  8. According to the issues paper (IASB 2012a, ¶27), the analysts felt that accounting for in-use (bearer) biological assets under IAS 41 was misleading to users because the standard required reporting price changes for assets that were not being held for sale (derive value in-use). In addition, analysts felt that accounting for in-use (bearer) biological assets under IAS 41 introduced volatility into earnings that was not useful in estimating the value of the in-use (bearer) biological assets (IASB 2012a, ¶33).

  9. The IASB (2010, ¶6.13a) states: “The existing Conceptual Framework provides little guidance on measurement and when a particular measurement basis should be used.”

  10. Specifically, IAS 41 prescribes accounting treatment for agricultural activity, or “management by the entity of the biological transformation of living animals and plants (biological assets) for sale, into agricultural produce, or into additional biological assets” (IASB 2009, ¶IN1).

  11. This sample selection is consistent with Daly and Skaife (2016), who examine whether IAS 41 impacted firms’ cost of debt, and partition their sample into bearer and non-bearer biological assets, eliminating firm-year observations holding both asset groups.

  12. Fifty-five percent of firms in the sample are cross-listed on a variety of other exchanges.

  13. My results are not sensitive this design choice. Specifically, my results are unchanged if I substitute the market information from the firm’s largest equity exchange as opposed to summing across exchanges.

  14. In my sample, 50 firms (27.3% of the sample), adopt IAS 41 and continue to measure their biological assets at historical cost.

  15. The amendment to IAS 41 does not include bearer livestock such as dairy cattle, only plants.


  • Aboody, D., Barth, M., & Kasnik, R. (1999). Revaluations of fixed assets and future firm performance: evidence from the UK. Journal of Accounting and Economics, 26(1–3), 149–178.

    Article  Google Scholar 

  • Ahmed, A., & Takeda, C. (1995). Stock market valuation of gains and losses on commercial banks investment securities: an empirical analysis. Journal of Accounting and Economics, 20(2), 207–225.

    Article  Google Scholar 

  • Altamuro, J., & Zhang, H. (2013). The financial reporting of fair value based on managerial inputs versus market inputs: Evidence from mortgage servicing rights. Review of Accounting Studies, 18(3), 833–858.

    Article  Google Scholar 

  • Ball, R., Kothari, S., & Robin, A. (2000). The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics, 29(1), 1–51.

    Article  Google Scholar 

  • Barth, M. (1994a). Fair value accounting: Evidence from investment securities and the market valuation of banks. The Accounting Review, 69(1), 1–25.

    Google Scholar 

  • Barth, M. (1994b). Fair value accounting for banks investment securities: What do bank shares prices tell us? Bank Accounting and Finance, 7, 13–23.

    Google Scholar 

  • Barth, M. (2014). Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), 331–352.

    Article  Google Scholar 

  • Barth, M., & Clinch, G. (1998). Revalued financial, tangible, and intangible Assets: Associations with share prices and non-market-based value estimates. Journal of Accounting Research, 36(Supplement), 199–233.

    Article  Google Scholar 

  • Barth, M., & Landsman, W. (1995). Fundamental issues related to using fair value accounting for financial reporting. Accounting Horizons, 9(4), 97–107.

    Google Scholar 

  • Barth, M., Beaver, W., & Landsman, W. (2001). The relevance of value relevance literature for financial accounting standard setting: Another view. Journal of Accounting and Economics, 31(1–3), 77–104.

    Article  Google Scholar 

  • Barth, M., Landsman, W., Lang, M., & Williams, C. (2012). Are IFRS-based and US GAAP-based accounting amounts comparable? Journal of Accounting and Economics, 54(1), 68–93.

    Article  Google Scholar 

  • Beaver, W., & Landsman, W. (1983). Incremental information content of Statement No. 33 disclosures. FASB: Norwalk, CT.

    Google Scholar 

  • Beaver, W., & Ryan, S. (1985). How well do statement no. 33 earnings explain stock returns? Financial Analysts Journal, 41(5), 66–71.

    Article  Google Scholar 

  • Bernard, V., & Ruland, R. (1987). The incremental information content of historical cost and current cost income numbers: Time series analyses for 1962–1980. The Accounting Review, 62(4), 707–722.

    Google Scholar 

  • Bernard, V., Merton, R., & Palepu, K. (1995). Mark-to-market accounting for U.S. banks and thrifts: Lessons from the Danish experience. Journal of Accounting and Research, 33(1), 1–32.

    Article  Google Scholar 

  • Botosan, C., & Huffman, A. (2015). Decision-useful asset measurement from a business valuation perspective. Accounting Horizons, 29(4), 757–776.

    Article  Google Scholar 

  • Brown, P., Preiato, J., & Tarca, A. (2014). Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance and Accounting, 41(1–2), 1–51.

    Article  Google Scholar 

  • Cairns, D., Massoudi, D., Taplin, R., & Tarca, A. (2011). IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia. The British Accounting Review, 43(1), 1–21.

    Article  Google Scholar 

  • Christensen, H., & Nikolaev, V. (2013). Does fair value accouting for nonfinancial assets pass the market test? Review of Accounting Studies, 18(3), 734–775.

    Article  Google Scholar 

  • Christensen, H., Hail, L., & Leuz, C. (2013). Mandatory IFRS reporting and changes in enforcement. Journal of Accounting and Economics, 56(2–3), 147–177.

    Article  Google Scholar 

  • Daly, A., & Skaife, H. (2016). Accounting for biological assets under IFRS and the cost of debt. Journal of International Accounting Research, 15(2), 31–47.

    Article  Google Scholar 

  • Deloitte. (2014). Bearer plants: Amendments to IAS 41, to bear or not to bear. Deloitte & Touche.

  • Dietrich, J., Harris, M., & Muller, K. (2000). The reliability of investment property fair value estimates. Journal of Accounting and Economics, 30(2), 125–158.

    Article  Google Scholar 

  • Easton, P. D., Eddey, P. H., & Harris, T. S. (1993). An investigation of revaluations of tangible long-lived assets. Journal of Accounting Research, 31(Supplement), 1–38.

    Article  Google Scholar 

  • Eccher, A., Ramesh, K., & Thiagarajan, S. (1996). Fair value disclosures of bank holding companies. Journal of Accounting and Economics, 22(1–3), 79–117.

    Article  Google Scholar 

  • Elad, C., & Herbohn, K. (2011). Implementing fair value accounting in the agricultural sector. Edinburgh: The Institute of Chartered Accountants of Scotland.

    Google Scholar 

  • Financial Accounting Standards Board (FASB). (2010). Statement of financial accounting standards no. 144: Accounting for the impairment of disposal of long-lived Asset Financial Accounting Series. Norwalk, CT: FASB.

    Google Scholar 

  • Financial Accounting Standards Board (FASB). (2011). Fair value Measurement Accounting standards codification 820. Norwalk, CT: FASB.

    Google Scholar 

  • Financial Accounting Standards Board (FASB). (2012). Discussion paper: Disclosure Framework Financial Accounting Series. Norwalk, CT: FASB.

    Google Scholar 

  • Heckman, J. (1979). The sample selection bias as a specification error. Econometrica, 41(1), 153–162.

    Article  Google Scholar 

  • Hopwood, W., & Schaefer, T. (1989). Firm-specific responsiveness to input price changes and the incremental information content in current cost income. The Accounting Review, 64(2), 312–338.

    Google Scholar 

  • Institute of Chartered Accountants in England and Wales. (2010). Business models in accounting: The theory of the firm and financial reporting. Working Paper, Information for Better Markets Initiative.

  • International Accounting Standards Board (IASB). (2006). International Accounting Standard 41: Agriculture. London, UK: IASB.

    Google Scholar 

  • International Accounting Standards Board (IASB). (2009). International Accounting Standard 41: Agriculture. London, UK: IASB.

    Google Scholar 

  • International Accounting Standards Board (IASB). (2010). Conceptual framework for financial reporting 2010. London, UK: IASB.

    Google Scholar 

  • International Accounting Standards Board (IASB). (2012a). AOSSG issues paper on IAS 41: Agriculture. London, UK: IASB.

    Google Scholar 

  • International Accounting Standards Board (IASB). (2012b). IAS 41 Agriculture - Bearer biological assets. London, UK: IASB.

    Google Scholar 

  • International Accounting Standards Board (IASB). (2014). Agriculture: Bearer plants (Amendments to IAS 16 and IAS 41). London, UK: IASB.

    Google Scholar 

  • Kolev, K. (2009). Do investors perceive marking-to-model as marking-to-myth? Early evidence from FAS 157. Working paper, Yale University.

  • KPMG. (2012). IFRS Compared to U.S.GAAP. London, UK: KPMG International Financial Reporting Group.

    Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131–1150.

    Article  Google Scholar 

  • La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny. (1998). Law and finance. Journal of Political Economy, 106, 1113–1155.

    Article  Google Scholar 

  • Landsman, W. (2007). Is fair value accounting information relevant and reliable? Evidence from capital markets research. Accounting and Business Research, 37(Supplement), 19–30.

    Article  Google Scholar 

  • Lawrence, A., Sirikival, J., & Sloan, R. (2016). Who's the fairest of them all? Evidence from closed end funds. The Accounting Review, 91(1), 207–227.

    Article  Google Scholar 

  • Lennox, C., Francis, J., & Wang, Z. (2012). Selection models in accounting research. The Accounting Review, 87(2), 589–616.

    Article  Google Scholar 

  • Leuz, C., Nanda, D., & Wysocki, P. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69, 505–527.

    Article  Google Scholar 

  • Linsmeier, T. J. (2016). Revised model for presentation in statement(s) of financial performance: Potential implications for measurement in the Conceptual Framework. Accounting Horizons, 20(4), 485–498.

    Article  Google Scholar 

  • Littleton, A. (1935). Value or Cost. The Accounting Review, 10(3), 269–273.

    Google Scholar 

  • Lobo, G., & Song, I. (1989). The incremental information in SFAS No. 33 income disclosures over historical cost income and its cash and accrual components. The Accounting Review, 64(2), 329–343.

    Google Scholar 

  • Marshall, R., & Lennard, A. (2016). The reporting of income and expense and the choice of measurement bases. Accounting Horizons, 30(4), 499–510.

    Article  Google Scholar 

  • May, G. (1936). The influence of accounting on the development of the economy. Journal of Accountancy, 61(1), 11–22.

    Google Scholar 

  • Nelson, K. (1996). Fair value accounting for commercial banks: An empirical analysis of SFAS No. 107. The Accounting Review, 71(2), 161–182.

    Google Scholar 

  • Nissim, D., & Penman, S. (2008). Principles for the application of fair value accounting. Working paper, Columbia Business School Center for Excellence in Accounting and Security Analysis.

  • Penman, S. (2007). Financial reporting quality: Is fair value a plus or a minus? Accounting and Business Research, Special Issue, 33–44.

    Article  Google Scholar 

  • Petroni, K., & Whalen, J. (1995). Fair values of equity and debt securities and share prices of property casualty insurance companies. Journal of Risk and Insurance, 62, 719–737.

    Article  Google Scholar 

  • Song, C., Thomas, W., & Yi, H. (2010). Value relevance of FAS 157 fair value hierarchy information and the impact of corporate governance mechanisms. The Accounting Review, 85(4), 1375–1410.

    Article  Google Scholar 

Download references


I thank the editor (Richard Sloan) and two anonymous reviewers for their helpful comments. This study is based on my dissertation at the University of Utah’s David Eccles School of Business. I am particularly grateful to Steve Stubben for all of his help and guidance on this project. In addition, I thank my dissertation committee: Christine Botosan (chair), Melissa Lewis-Western, Marlene Plumlee, Jim Schallheim, and Haimanti Bhattacharya. I also thank Gus DeFranco, Lynn Hannan, and workshop participants from the BYU Research Symposium, the University of Utah, the FDIC, Tulane University, LSU, and the 2015 FARS Conference. This study was a finalist for the Best Paper Award at the 2015 Financial Accounting Reporting Section Mid-Year Conference.

Author information

Authors and Affiliations


Corresponding author

Correspondence to Adrienna Huffman.


Appendix A IAS 41 disclosure example

Below are examples of the balance sheet, income statement, and footnote disclosures required under IAS 41. The examples are from the New Britain Palm Oil’s 2011 Annual Report.

Balance Sheet Disclosure:




2011 USD,000

2010 USD,000


  Property, plant and equipment




  Biological assets




  Intangible assets




  Investments in subsidiaries






  Cash and cash equivalents




  Trade and other receivables




  Biological assets








  Assets classified as held for sale



  Amounts owed by group companies









Income Statement Disclosure:




2011 USD1100

2010 USD’000

Revenue from continuing operations




Cost of sales




Gross profit




Net (loss)/gain arising from changes in fair value of biological assets




Other Income




Other gains




Distribution costs




Administrative expenses




Operating profit




  1. Footnote Disclosure:









  Oil palm trees

  Balance at the beginning of the year



  Increases due to expenditure to planted areas



  Gain arising from changes in fair value



  Decreases due to harvest (note 5)



  Increases resulting from acquisition of subsidiary


  Exchange differences



Balance at the end of the year



Table 9 Construct validity for in-exchange versus in-use biological assets

Appendix B

Table 10 Variable definitions

Appendix C – Heckman (1979) procedure

A true DiD research design requires a random sorting of observations into the treatment and control samples. In my study, the control group comprises firms that adopt IAS 41 but continue to measure their biological assets at historical cost. As this is a non-random sorting, selection bias is a concern since its presence has the potential to produce biased coefficients in the main estimations (see Lennox et al. 2012). In order to address this concern, I use a standard procedure for controlling for selection bias: the two-stage Heckman (1979) procedure (Lennox et al. 2012).

In the first stage, I model firms’ “choice” of measuring their biological assets at historical cost upon adoption of IAS 41. I follow Christensen and Nikolaev (2013), who examine the characteristics of firms that adopt IFRS and voluntarily choose to measure their PP&E at fair value, but modify their approach to include variables that capture accounting enforcement, as the choice to continue measuring biological assets at historical cost appears to be a country-level enforcement issue. Specifically, I estimate the following logit model on all observations included in the DiD sample:

$$ {HC}_i={\mu}_0+{\mu}_1{INUSE}_i+{\mu}_2{SIZE}_{i,t}+{\mu}_3{PPE}_{i,t}+{\mu}_4{CURRENT\ DEBT}_{i,t}+{\mu}_5{LOSS}_{i,t}+{\mu}_6{EARLY}_i+{\mu}_7{ENFORCEMENT}_{i,t}+{\mu}_8 COMMON\ {LAW}_i+{\mu}_9{CHL}_{i,t}+ COUNTRY\ FIXED\ EFFECTS+{\varepsilon}_t\kern0.5em $$

HC is an indicator variable that takes the value of one if firm i continues to measure its biological assets at historical cost upon adoption of IAS 41; SIZE is the log of the firm’s average assets in year t; PPE is the firm’s net PP&E scaled by total assets; CURRENT DEBT is the firm’s current portion of debt in year t, scaled by the firm’s average assets; LOSS indicates whether the firm had negative operating income in year t; and EARLY indicates whether the firm early adopted IFRS. To control for variation in the enforcement of accounting standards across countries, I include three variables in addition to country fixed effects. The first variable, ENFORCEMENT, indicates whether the firm’s country exceeds the sample median enforcement level index constructed by Brown et al. (2014), an index which captures the degree of accounting enforcement at the country level. Next, I include an indicator variable, COMMON, that takes a value of one if the firm operates in a common law country, as prior research finds that investor protection laws are stronger in common law countries (La Porta et al. 1997, 1998), and that common law financial reporting systems are perceived to be higher in quality than civil law systems are (Ball et al. 2000; Leuz et al. 2003). Finally, I include an indicator variable, CHL, that takes a value of one for year-country observations where Christensen et al. (2013), Appendix A find substantive changes in accounting enforcement.

The exclusion restrictions in model A1, that is, the independent variables included in the first-stage model but excluded from the second-stage models, are PPE, CURRENT DEBT, ENFORCEMENT, COMMON, and CHL. In the first-stage I model firms’ “choice” to continue measuring their biological assets at historical cost as a function of the proportion of the firm’s assets held in PP&E, of the current portion of the firm’s debt, and of the level at which the firm’s country enforces its accounting standards. I exclude these variables from the second-stage models, as I do not expect the percentage of the firm’s PP&E and current debt or the country’s enforcement of accounting standards to be first-order drivers in affecting the relevance of firm’s book value and earnings information. Nevertheless, in robustness analyses, I investigate the sensitivity of my results to this assumption, and find that including the portion of the firm’s PP&E and current debt or any of the enforcement variables in my second-stage models does not affect my inferences.

The results from the first-stage estimation, i.e., model A1, appear below:













































Country Fixed Effects






  1. The results suggest that firms with in-use biological assets that earn losses, and that early adopt IFRS, are significantly more likely to measure their biological assets at historical cost upon adoption of IAS 41. In contrast, firms in common law countries are significantly less likely to measure their biological assets at historical cost upon adoption of IAS 41. After the first-stage estimation, I calculate an inverse Mills’ ratio for each firm-year observation in the above sample (MILLS), and I include it in all second-stage DiD estimations

Rights and permissions

Reprints and Permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Huffman, A. Asset use and the relevance of fair value measurement: evidence from IAS 41. Rev Account Stud 23, 1274–1314 (2018).

Download citation

  • Published:

  • Issue Date:

  • DOI:


JEL classification