The Value Relevance Of The Changes In Fair Value Of Financial Assets

With the continuous economic development, the emergence of large numbers of financial instruments, historical cost measurement property has been increasingly unable to meet the information needs of report users in China. In the context of international convergence of accounting standards, China issued new accounting standards on February 15, 2006, which introduced the concept of fair value appropriately and prudently, cleared the identification and use of fair value principles, became one of the most shining features of the new guidelines. This is in line with international trends in accounting measurement, and also meets the objective requirements of economic development, however, it also produces a number of issues need explored. For example, are the recognition and provisions of measurement of financial assets really as effective as expected? Whether there is stronger value relevance? Not only the standard-setter (the Ministry of Finance), but also the market regulator (CSRC), the provider of financial reports (listed companies) and users (all investors) and auditors concerned these questions. So, research on these issues is of great practical significance and long-term significance.Research of the fair value involves many aspects of problems, however fair value changes of trading financial assets and financial assets available for sale should be the most important one. Firstly, the paper will describe the research background and research significance, collect and sort out the theoretical and empirical research of value relevance of fair value and other aspects related at home and abroad, build the content of the framework and innovations. Then it will start from the production and development of the fair value, analyze the theoretical basis of fair value measurement, including the Economic Consequences Theory, Efficient Market Hypothesis, Decision-usefulness View and Functional Fixation Hypothesis, and will describe the background of the application of the system in fair value of financial instruments, in order to facilitate follow-up applied research in-depth understanding. In part of the study design, it will focus on explaining the sample selection, assumptions made and the construction of such regression models. Finally, after filtered and removed, this paper will use the pricing model and return model to test value relevance of the changes in fair value between trading financial assets and financial assets available for sale right under our new guidelines uses A-share companies of Shanghai and Shenzhen in year 2007 - 2008 as a sample. The main conclusion is that value relevance of changes in fair value gains and losses were significantly higher than of the net change of fair value of financial assets available for sale, which shows the existence of Functional Fixation phenomenon in China's securities market, investors just see the changes in fair value gains and losses of trading financial assets reflected in income statement, without paying attention to the net change of fair value of financial assets available for sale contained in the balance sheets. And then offers some recommendations on the application of fair value in China.