The effect of accounting for high performing employee services as a right of use asset on the balance sheet on nonprofessional investors judgments

Abstract

AbstractWe examine whether accounting for high performing employee services as a right of use (ROU) asset and related liability on the balance sheet provide decision‐useful financial statement information to nonprofessional investors (NPIs). We compare accounting for the right to use employees services as an asset on‐balance‐sheet (ONBS) and off‐balance‐sheet (OFFBS) to examine the extent to which a ROU asset and related liability provides NPIs with decision‐useful information in assessing investment opportunity and likelihood to invest in a company's stock. We analyze one hundred and fifty‐five usable responses of which 84 are in OFFBS control condition and 71 are in ONBS treatment condition. We find that accounting for high performing employees services as a ROU asset ONBS or OFFBS provides decision‐useful information to NPIs that is not statistically different. Further analysis indicates that accounting for high performing employees as a ROU intangible asset presented ONBS, measured at fair value, or amortized cost with enhanced disaggregation and roll forward disclosures provide decision‐useful information to NPIs. The likelihood to invest in a company's stock significantly increases if the ROU asset is measured at fair value with changes recorded in net income. Results have economic and practical implications for investors, standard‐setters, and researchers.