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Relative Value Relevance of Alternative Accounting Treatments for Unrealized Gains: Implications for the IASB
Author(s) -
OwusuAnsah Stephen,
Yeoh Joanna
Publication year - 2006
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2006.00128.x
Subject(s) - relevance (law) , accounting , income statement , economics , value (mathematics) , comprehensive income , statement (logic) , net income , investment (military) , fair value , setter , test (biology) , distribution (mathematics) , financial statement , actuarial science , public economics , balance sheet , gross income , audit , statistics , mathematics , political science , geography , law , mathematical analysis , archaeology , tax reform , politics , state income tax , paleontology , biology
Abstract We investigate the relative value relevance of the alternative accounting methods for unrealized gains on investment properties in New Zealand (NZ). Using both the Likelihood‐ratio test and the F ‐test, we find that, while preferred by the NZ standard setter, recognition of unrealized gains in the income statement is not superior to (or significantly different from) recognition of unrealized gains in revaluation reserve in terms of their value relevance. The results are robust to the different research methods we used. Our results have implications for the International Accounting Standards Board in terms of: (i) recognizing changes in fair values of investment properties in the income statement under the revised IAS 40: Investment Property in countries where “realization” refers to net income available for distribution; (ii) its intent to issue a standard on a single statement of comprehensive income; and (iii) its initiative to reduce or eliminate alternative accounting treatments for similar fact situations in its standards.