Abstract
AbstractThe paper presents the results of an empirical analysis on the disclosure of the fair value measurement in the real estate sector following the introduction of IFRS 13. Fair value is an important criterion for IFRSs with many uses stated by different standards and over the years an intense debate has arisen about both the usefulness of fair value and its definition. In 2011 the IASB issued a new standard about fair value, its definition, its measurement and the related disclosure. The effective date of IFRS 13 was 1st January 2013. The introduction of IFRS 13 is an opportunity to verify the state of art of the application of fair value as a subsequent measurement. Furthermore, the paper aims at verifying whether the introduction of IFRS 13 leads to an improvement in the disclosure reported in the notes. Focusing on investment properties, the paper aims at verifying the effects of the first application of IFRS 13 in the real estate sector, by means of an empirical research of Italian, French and German groups listed on the Stock Exchange. A total of 1,343 items were hand collected. The results show that the fair value model is used in 75% of cases of real estate companies which held investment properties. Disclosures about fair value measurement required by IFRS 13 are reported by many entities, but there are still companies not compliant with the new requirements.
Highlights
Fair value is an important criterion for IFRSs with many uses stated by different standards: for initial recognition, for allocation of the initial amount among its constituent parts (e.g. IFRS 3 [1], IAS 32 [2]), for subsequent measurement (e.g. IAS [3], IAS [4]) and for determination of the recoverable amount (e.g. IAS 36 [5])
The introduction of IFRS 13 is very important for entities that operate in the real estate sector, where investment properties could be relevant compared to the other assets and even if fair value is not mandatory for the subsequent measurement, its measurement is always necessary at least for disclosure purposes
In particular IFRS 13 requires the following information: (i) the level of the fair value hierarchy within the fair value measurements are categorized in their entirety (Level 1, Level 2 or Level 3), (ii) for fair value measurements categorized within Level 2 and Level 3 of the fair value hierarchy, a description of the valuation technique(s) and the inputs used in the fair value measurement, (iii) for fair value measurements categorized within Level 3 of the fair value hierarchy, quantitative information about the significant unobservable inputs used (iv) and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement
Summary
Fair value is an important criterion for IFRSs with many uses stated by different standards: for initial recognition (in nearly every standard), for allocation of the initial amount among its constituent parts (e.g. IFRS 3 [1], IAS 32 [2]), for subsequent measurement (e.g. IAS [3], IAS [4]) and for determination of the recoverable amount (e.g. IAS 36 [5]). The introduction of IFRS 13 is very important for entities that operate in the real estate sector, where investment properties could be relevant compared to the other assets and even if fair value is not mandatory for the subsequent measurement, its measurement is always necessary at least for disclosure purposes. This sector has been significantly influenced by the crisis, with obvious effects on market prices and transactions.
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