The decision usefulness of reported changes in fair values and fair value measurement-related disclosure for debtholders: evidence from Australian real estate industry

Sangchan, Pinprapa; Jiang, Haiyan; Bhuiyan, Md. Borhan Uddin

doi:10.1108/arj-11-2019-0222

Cited by 3 publications

(2 citation statements)

References 45 publications

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“…The value relevance is lower for valuation estimates provided by firm directors than those collectively provided by both internal directors and external property valuers. Sangchan et al (2020) show that investment property revaluations are negatively associated with the cost of debt capital, suggesting that fair value information of investment properties are useful for debtholders. Owusu-Ansah and Yeoh (2006) show that for New Zealand firms, the value relevance of revaluation gains or losses from investment properties does not increase when these revaluations flow through net income following the adoption of IAS 40, instead of directly recognized in the equity.…”

Section: Corporate Governance Structures Of Family-control Real Estat...mentioning

confidence: 96%

Section: Relevant Literature and Hypothesis Developmentmentioning

confidence: 96%

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Fair value estimates of investment property, corporate governance and audit pricing: evidence from the Hong Kong real estate industry

Tang

2023

JAEE

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PurposeFollowing the adoption of International Financial Reporting Standards (IFRS), firms are required to recognize gains or losses from investment property revaluation in the income statement, instead of equity in the balance sheet. This results in both a “materiality effect” (as auditors set a higher materiality level and require lower audit efforts) and a “cushion effect” (as revaluation gains serve as a cushion and reduce earnings manipulation incentives). Utilizing this unique setting, this study investigates whether the use of fair value measurement for investment property affects audit pricing before and after IFRS convergence in the Hong Kong real estate industry.Design/methodology/approachUsing a sample of 78 real estate companies listed on the Hong Kong Stock Exchange in the pre-IFRS period (2001–2004) and the post-IFRS period (2005–2008), this study employs multivariate regression analyses to test the research hypotheses with respect to the association between investment property revaluation and audit fees and the role of corporate governance structures in the context of family control.FindingsThe empirical results suggest that audit fees decrease with revaluation gains or losses from investment property revaluation after IFRS convergence, but not before. Furthermore, the negative association is stronger in companies controlled by founders, with proportionally more independent directors on the board and with a smaller board size. This is consistent with the moderating effect of corporate governance.Originality/valueThe findings shed more light on the consequences of fair value accounting for non-financial assets and are of interest to regulators for assessing the benefits of the wide use of fair value measurement under IFRS in emerging markets, especially where the corporate ownership structure is typically controlled by founding families. This study also provides recommendations for the audit community to fully consider the impact of asset revaluation on audit procedures and audit pricing.

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Section: Corporate Governance Structures Of Family-control Real Estat...mentioning

confidence: 96%

Section: Relevant Literature and Hypothesis Developmentmentioning

confidence: 96%

Fair value estimates of investment property, corporate governance and audit pricing: evidence from the Hong Kong real estate industry

Tang

2023

JAEE

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Fair value and investment property in accounting literature: a review

Khelil,

Khlif

2024

JFMPC

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Purpose This study aims to provide a timely review concerning the determinants and economic consequences of fair value reporting in real estate industry, as these topics have been gaining momentum in accounting literature recently. Design/methodology/approach Diverse editorial sources (e.g. Elsevier, Emerald, Meridian Allenpress, Springer, Sage, Taylor & Francis and Wiley-Blackwell) were consulted to identify relevant studies for this review. Keywords used to collect studies include “fair value” and “IAS 40” or “investment property” and “fair value or “fair value and real estate.” This search yields 33 studies published between 2009 and 2023. Findings The synthesis of reviewed papers suggests that studies were mainly conducted in the European countries after the mandatory adoption of international financial reporting standards (IFRS) in 2005 and the Australian setting. The first stream of research deals with the choice of fair value approach. Reported empirical findings suggest that corporate size and market-to-book ratio are negatively associated with fair value choice, whereas ownership dispersion increases the likelihood of choosing fair value approach. The empirical evidence concerning the determinants of fair value magnitude suggests the type of appraiser represents a key predictor of the extent of fair value use. The second stream of research examines the impact of fair value reporting in real estate industry. Findings suggest that empirical evidence is still limited with respect to creditors, managers and financial analysts; fair value reporting is generally associated with higher level of value relevance for investors; and the use of Level 3 inputs in fair value estimates for investment properties is associated with high degree of estimation uncertainty for external auditors leading to increased audit risk and fees. Practical implications With respect to regulators, this review emphasizes that the beneficial impacts of fair value reporting are linked to institutional characteristics (e.g. legal system, the degree of market development), the reliability concerns regarding fair value estimates and the independence of appraiser. Because real estate industry is generally characterized by the lack of active market, regulators may adopt regulations requiring the independence external appraiser. Originality/value This literature review represents a historical record and an introduction for accounting scholars, in emerging economies and other settings, where fair value accounting has gained wide acceptance among the investment community. It also offers guidance for future research avenues.

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Social capital accounting and improving financial performance: a mediating role of the quality of accounting information

Rashid

2024

JIABR

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Purpose The purpose of the current research is to examine the relationship between social capital (SC) and financial performance (FP) in industrial enterprises in the Kurdistan Region of Iraq and Sulaimani City (KRG), as well as the role of the quality of accounting information (QAI) as a mediator between SC and FP. Design/methodology/approach In this study, SmartPLS is used to analyze the questionnaire that was distributed to 10 industrial firms engaged in the iron industry in 2021. The researcher used stratified random sampling to collect sample data from 252 full-time employees of a manufacturing companies in Kurdistan Region/ Iraq. Findings The findings of this research show that accounting measurement and disclosure of social capital (AMDSC) plays an important role in improving FP and that QAI mediates between AMDSC and FP in industrial companies in the KRG and Sulaimani city. This research aims to examine the impact of AMDSC on FP through mediating the QAI between AMDSC and FP at industrial companies in KRG/Sulaimani City. The results showed that AMDSC had a positive and significant impact on the company’s FP. The overall results of this study show that AMDSCs are positively and significantly correlated with financial performance, and QAI mediates between AMDSC and FP. This shows that SC should be considered in the companies’ plan to obtain additional funding in this sector. Research limitations/implications This study is exclusive to KRG/Sulaimani City’s iron industry. Other industries including sugar, cement, clothing, vehicles and medications could be the subject of future investigations. Practical implications The research provides insightful practical implications for management. First, the outcomes recommend that business owners and managers find a satisfactory level of SC when it significantly and positively affects financial performance. Second, the findings of this study will assist KRG manufacturing companies in making rational decisions to maximize profits while minimizing transaction costs such as information and research costs, increasing trust or reducing administrative burdens. This will eventually lead to the growth of industrial companies’ wealth in KRG/Sulaimani City. Managers should focus on social relationships between employees and management to maximize trust and reduce transaction costs, as they have future earnings. Originality/value Due to the lack of prior attention given to social capital in KRG, this research focuses on enhancing financial performance in industrial enterprises in KRG and Sulaimani City.

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The decision usefulness of reported changes in fair values and fair value measurement-related disclosure for debtholders: evidence from Australian real estate industry

Cited by 3 publications

References 45 publications

Fair value estimates of investment property, corporate governance and audit pricing: evidence from the Hong Kong real estate industry

Fair value estimates of investment property, corporate governance and audit pricing: evidence from the Hong Kong real estate industry

Fair value and investment property in accounting literature: a review

Social capital accounting and improving financial performance: a mediating role of the quality of accounting information

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