Relative Value Relevance of Alternative Accounting Treatments for Unrealized Gains: Implications for the IASB

Abstract

We investigate the relative value relevance of the alternative accounting methods for unrealized gains on investment properties in New Zealand (NZ). Using both the Likelihood-ratio test and the F-test, we find that, while preferred by the NZ standard setter, recognition of unrealized gains in the income statement is not superior to (or significantly different from) recognition of unrealized gains in revaluation reserve in terms of their value relevance. The results are robust to the different research methods we used. Our results have implications for the International Accounting Standards Board in terms of: (i) recognizing changes in fair values of investment properties in the income statement under the revised IAS 40: Investment Property in countries where ''realization'' refers to net income available for distribution; (ii) its intent to issue a standard on a single statement of comprehensive income; and (iii) its initiative to reduce or eliminate alternative accounting treatments for similar fact situations in its standards.

The Use of Fair Value and Historical Cost Accounting for Investment Properties in China

“…Fair value accounting (FVA) has aroused much interest since FASB 157 Fair Value Measurements was first issued (Landsman 2006;Maines & Wahlen 2006;Owusu-Ansah & Yeoh 2006;Bahal et al 2008;Christensen & Nikolaev 2008;Muller et al 2008;Peng 2008). FVA is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and is deemed more relevant and reliable than historical cost (Bahal et al 2008).…”

Value Relevance of Investment Properties’ Fair Value and Board Characteristics in Malaysian Real Estate Investment Trusts

“…Studies on value relevance of fair value of investment property in Malaysia are limited to the property industry (Pappu & Devi 2011;Ishak et al 2012). In addition, prior studies (Lourenco & Curto 2008;Owusu-Ansah & Yeoh 2006;So & Smith 2009;Ishak et al 2012;Pappu & Devi 2011) provide mixed results. Similar value relevance study in new context is therefore necessary to provide further understanding on what information is deemed as relevant by investors.…”

“…The additional requirement of MREITs is a unique feature that made results of prior studies within other industries and jurisdictions (such as Owusu-Ansah & Yeoh 2006;So & Smith 2009;Lourenco & Curto 2008;Pappu & Devi 2011;Ishak, Saringat, Ibrahim & Wahab 2012) might not be applicable to MREITs industry. The revaluation of investment properties may reduce the opportunistic behaviour among managers and less information asymmetry between managers and investors.…”

“…This inconsistency may be influenced by the external factor such as stage of development in the capital market (So and Smith 2009;Owusu-Ansah and Yeoh 2006) or type of industry (Pappu & Devi 2011). The mixed findings of previous studies indicate the possibility that other factors may influence the value relevance of information on fair value.…”

Persepsi Investor Terhadap Perubahan Penyajian Kepentingan Nonpengendali Sebelum Dan Sesudah Berlaku Efektifnya Psak 4 (Revisi 2009)

“…Hasil penelitian Owusu-Ansah dan Yeoh (2006) menemukan bahwa pasar ternyata tidak memberikan perlakuan berbeda terhadap unrealized gains on investment properties yang disajikan pada laporan laba rugi maupun pada revaluation…”