Research On The Application Of Fair Value Measurement In Investment Property

In May of2012, the Ministry of Finance has issued the "Accounting Standards for Enterprise No. X—Fair Value Measurements (Exposure Draft)", and set up a scientific research project to widely gain insight into the application of fair value in companies to offer first-hand information on setting the standard. In the research, contrasting multi-cases method was used to study29public companies which adopted Fair Value pattern to measure real estate from2007to2011. The research studied the current situation of fair value measurement and existing problems in its application by analyzing the application of fair value measurement and its early and late impact on financial indexes in the29companies. Finally, based on these problems and several achievements at taking an active part in the project of the Ministry of Finance, namely the "Revise and Simulation Test of Fair Value Measurements Standard", the paper puts forward relevant suggestions on the improvement of the application of fair value measurement and developing the standard of "fair value measurements".This study is divided into four parts.The first one is chapter II:Literature Review. This chapter summarized studies on fair value measurement and investment real estate measured with the fair value model on the clue of three study methods:normative research, narrow positive research, and case study, found the insufficiency of the previous research about investment real estate measured with the fair value pattern.The second one is chapter III:Theory Outline. First, this chapter states the main professional terms, including Fair Value, Fair Value Measurement, Investment Property, Investment Property Measurement Model. In the same time, I briefly state the three kinds of valuation techniques and the sub-division on fair value measurement attribute, which is the theory basis for fifth chapter. Second, introduce the main points of theories used in the study, including Contract Theory, Economic Consequence Theory, Measurement Perspective. Measurement Perspective is the main theory basis for encouraging companies to use fair value measuring.The third part is chapter Ⅳ and chapter Ⅴ. Chapter IV researches the effect of using fair value measuring on enterprise financial determinants. In order to fully reflect the influence on financial determinants, the chapter not only divided the29samples into three compare groups, but also contrasted the early and late impact on financial indexes for using fair value measurement under investment property. Through the finding, the influence on financial determinants for using fair value to measure investment property, company’s main financial indexes, such as the size of enterprise’s assets, net income, leverage, have improved to some extent in the early, but would enhance unpredictability of the fluctuation of financial indexes. Maybe that is why most of the listed companies wouldn’t like to adopt fair value pattern. Chapter V studies the application of fair value measurement from valuation technique, obtaining approach, and disclosure information, in order to find the problem of applying. And use several materials which I adopted in the project "Revise and Simulation Test of Fair Value Measurements Standard" as an aid in analyzing. By analyzing disclosure financial statements of those29enterprises which adopted fair value pattern for investment property in2007to2011, I discover that the real estate market is unhealthy, unstable, and unevenly developed. Along with the late start of valuation industry, immature valuation techniques, and the pressure for needing reliable information by the users of financial report, the value appraisement of investment property is not only difficult and cost, but receive an uncertain consequence. Besides, the disclosure information is insufficient, and the disclosure requirement is unreasonable.The last part is chapter VI:Study Advice. According to the current situation of fair value measurement and existing problems in its application and several achievements in the project of the "Fair Value Measurements Standard", the chapter puts forward suggestions to three parties-government, intermediary, company, to solve these existing problems in the application of fair value measurement. First, the Ministry of Finance needs to fully communicate with other important government offices for obtaining their approval. Specially, the Ministry of Finance should make sure that the new fair value measurement standard coordinate with those offices’ rules. The company itself also takes some actions to decline the effect on the operation of company, and enhances the ability of reply the market risk. Second, the government needs to set up a platform to supply transaction information. When signing a value appraising authorization, the company could hire an accounting firm to communicating with the property assessment institution about the aim, assumptions, technology of value appraisement before taking appraisement activity. At the same time, in order to decline the measurement cost, company could recruit or develop accountant who possess knowledge in the aspect of value appraisement, set up information channels, and so on. At last, the Ministry of Finance should join supervising department to set up and improve a feedback mechanism about the implementation of accounting standards.There are two contributions in this paper:First, the paper takes a deep research on the valuation technique, obtaining approach, and disclosure information. The existing literature put more attention to the motive for choosing fair value measurement and its influence on financial determinants, but the obtaining means of fair value, value appraisal, the disclosure content and its rationality have received little attention. In order to improve the application of fair value measurement in our country, a study should dig into and solve performance problems on these aspects through my active participation in the project "Fair Value Measurements Standard". So, this paper study these aspects of29public companies at a detailed level, and then puts forward relevant suggestions to improve the situation.Second, the research about the influence on financial determinants goes further. The existing literature only focused on the early impact on financial indexes, the late impact on financial indexes or multi-samples study haven’t been involved. The early and late impact on financial indexes is different. The impact of using fair value model at the later stage is far more complicated, durable, and important. Meanwhile, only study after-effect of a single sample can not reflect the overall picture. So, the paper put the29public companies as research samples, contrast the early and late impact on financial indexes for using fair value measurement to reflect the influence on financial determinants of using fair value model widely and deeply.There are three limitations in this article: First, the research didn’t study the application of fair value measurement in other items. So, the finding about the application situation and application problem of fair value measurement couldn’t reflect the whole picture. The suggestions cannot solve the all application problems.Second, due to the limited resources, there may be exists some differences among the research conclusion and actual situation. I can only use indirect method to analyze the application problem of fair value measurement by consulting financial reports of research samples. Though I can realize the actual situation for asking intermediary organization and certified financial officers of two research samples by taking part in the ministry project, but the obtained information may not reflect the whole situation in our country.At last, analysis of financial data is not enough. In chapter IV, the method of analyzing the effect of fair value measurement on company financial data is simple. So, the analysis result may not reflect the whole financial influences of adopting fair value pattern to measure investment property.