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The Effect of the Fair Value Reporting Model on Analyst Forecast Properties: Evidence from Real Estate
Firms

value model and enables less-developed countries to mature their markets and valuation
professionals. However, partially because of SSAP No.19 prior to IFRS adoption, all
3
UK investment property firms reported their assets on balance sheets at fair value (Liang
and Riedl, 2014). IAS 40 also requires unrealized fair value gains/losses to be reported in

net income. In a nutshell, UK firms have reported investment properties at fair value on
the balance sheet throughout the pre- and post-IFRS periods; the key difference between
the two periods lies in the accounting treatment of unrealized fair value gains/losses (i.e.,

whether they pass through the income statement). In other words, under the pre-IFRS UK
domestic standards, the fair value reporting model applied only to balance sheets whereas
under IAS 40 in the post-IFRS period, it applies to both the balance sheet and the income
statement. To be brief and consistent with Liang and Riedl (2014), we refer to the pre-2005
accounting regime as a “partial fair value” reporting model and the post-2005 accounting

regime as a “full fair value” reporting model.

2.2 Literature Review
This subsection reviews the literature on fair value accounting. Prior studies indicate

that fair values of both financial and non-financial assets are value-relevant to financial
statement users. For example, Barth (1994) asserts that fair value estimates for investment
securities in US banks offer more explanatory power than historical costs. Venkatachalam
(1996) finds that fair value estimates for derivatives explain cross-sectional variation in
bank share prices and have incremental explanatory power alongside notional derivative

amounts. With respect to value relevance among non-financial assets, Easton, Eddey, and
Harris (1993) consider the asset-revaluation reserves among a sample of Australian non-
financial firms, meaning these firms’ adjustments to the market prices of tangible assets.

They find that asset-revaluation reserves represent a better summary of the current state
of a firm, as reflected in the positive association between annual returns and price-to-book
ratios. Barth and Clinch (1998) also show that revalued financial, tangible, and intangible
assets are value-relevant and that some old but revalued amounts still exhibit value

3 Please check IAS 40-BC12. Available at: http://www.casrilanka.com/casl/images/stories/content/
publications/publications/accounting_standards/sri_lanka_accounting_standards_application_
guidance_2011/application_guidance_of_iass/ias_2040-bc_20&_20appendix.pdf.

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