臺大管理論叢 NTU Management Review VOL.30 NO.2

315 NTU Management Review Vol. 30 No. 2 Aug. 2020 2. Accounting and Institutional Environment Chapter 1 of FASB Statement of Financial Accounting Concepts (SFAC) No. 8 (2010) states that, for accounting information to be relevant, it should possess predictive value, meaning that information that can be used by potential investors or lenders to assist them in the assessment of an entity’s prospects, e.g., amount, timing, and uncertainty of future net cash inflows of an entity, to predict future outcomes. Consequently, accounting information reported using the fair value model (e.g., recognition of changes in market prices of assets in income), should be more relevant than information reported using the historical cost model because it incorporates the most recent information about asset prices. To provide more pertinent information to investors about non-financial investment assets, the IASB issued IAS 40, effective January 1, 2005, allowing the use of fair value accounting for real estate investment properties. Investment properties include land and buildings which earn rental income and/or capital appreciation. Under the fair value model, after the initial purchase, investment properties are reported on the balance sheet at market values [IAS 40.33], with annual changes in the market values recognized in the income statement [IAS 40.35]. Although investment properties under the cost model are carried at cost, less accumulated depreciation, and impairment losses [IAS 40.56], IAS 40 still requires firms using the cost model to disclose the fair values of investment properties in the footnotes, except for certain circumstances in which the fair value of the assets cannot be reliably estimated. The most reliable estimates of fair values are determined by current property prices in an active market for similar properties in the same condition and location, as well as subject to similar lease or other contracts [IAS 40.45]. If there are no appropriate reliable market estimates available, firms may use model estimates which are supported by external evidence [IAS 40.46]. 3 The estimates of fair value are not required, but are encouraged, to be evaluated by external appraisers [IAS 40.79]. Effective January 1, 2007, China substantially converged its accounting standards with IFRS, and required all firms listed on the Chinese stock exchanges to measure real estate investment properties under Chinese Accounting Standards (CAS) 3. CAS 3 is substantially similar to IAS 40, except CAS 3 does not require firms using the cost model 3 This is equivalent to the Level 3 fair-valued assets, according to SFAS No. 157. We will discuss this in detail in the hypotheses development section.