The third item measures company’s u

The third item measures company’s use of fair value. Prior literature usually
refers to the use of fair value versus historical cost when discussing the predictive value
of financial reporting information (e.g. Barth et al., 2001; Hirst et al., 2004; McDaniel et
al. 2002; Schipper & Vincent, 2003; Schipper, 2003). It is often claimed that fair value
accounting provides more relevant information than historical cost because it represents
the current value of assets, instead of the purchase price (inter alia Maines & Wahlen,
2006; Schipper & Vincent, 2003). In addition, both the FASB and IASB are currently
considering new standards to allow more fair value accounting to increase the relevance of financial reporting information, since they consider fair value as one of most important
methods to increase relevance (Barth et al., 2001) [R3].
2