An Investigation Of The Effect Of Reporting Alternatives For Fixed Assets On Financial Statement Users In The United States And The European Union

Abstract

The European Union’s decision to require consolidated statements in accordance with IASB standards will serve to greatly enhance the acceptance of IASB standards on a worldwide basis.  For international standards to be accepted worldwide, they need to reflect the best reporting methods.  One area in which diverse treatment is found is in the valuation of fixed assets.  This study examines the effect of differing methods of fixed asset valuation on lending decisions made by bankers in the U.S. and the European Union represented by the countries of Germany and Austria.  Bankers from these countries were asked to make a lending decision for a hypothetical company, which used either historical cost or fair value in reporting fixed assets.  The results reveal a significant interaction effect between the home country of the respondent and the valuation method used.  Specifically, the European bankers granted larger loans to companies reporting fixed assets at fair value, while U.S. bankers granted larger loans to companies reporting fixed assets at historical cost.