Accounting for High Performing Employee Services as Right of Use Asset : Implications for Nonprofessional Investors’ Judgments

We propose accounting for high performing employee services as a right of use asset on the balance sheet and examine the decision-usefulness of the proposed financial statement information to nonprofessional investors (NPIs). We also compare the right of use employee services asset (ROU ESA) proposal with existing accounting for employee compensation under FASB ASC 710 to examine the extent to which our proposal provides NPIs with incremental information that is decision-useful 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 the FASB ASC 710 (control) and 71 are in the ROU ESA (treatment) conditions. Results indicate that accounting for high performing employees as a ROU ESA intangible asset presented on the balance sheet, 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 ROU ESA is measured at fair value with changes recorded in net income. Accounting under FASB ASC 710 and ROU ESA provide decision-useful information that is statistically similar to NPIs