How Fair Value Measurement and Graphical Disclosure Help Investors Assess the Performance and Risk of Crypto-Assets

Research in financial reporting and accounting standard setting requires an understanding of how measurement and disclosure affect investors’ judgments. This study uses the crypto-asset context to compare investors’ performance and risk judgments under historical cost and fair value measurement models and identify deficiencies in both models. Through an experiment that varies measurement basis and price volatility, we find that historical cost measurement with impairment allows users to better evaluate the risk related to a company’s crypto-assets but obscures these assets’ historical performance. In contrast, fair value measurement allows users to better evaluate the performance of a company’s crypto-assets but obscures the related risk. Importantly, we find that supplemental disclosure displaying price volatility graphically improves the incorporation of volatility information into risk judgments when the assets are reported at fair value. Our results provide timely input to standard setters as they debate changes to the accounting for crypto-assets and add to the literature on accounting measurement, reporting transparency, and disclosure processing costs