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.