The Relation Between The Revaluation Model Of Long-lived Assets And The Equity Cost Of Capital

• Main Authors: Lee, Chiachi, 李佳琦
• Other Authors: Chen, Weitzu
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/40404264011690033590

碩士 === 國立臺北大學 === 會計學系 === 100 === With the rapidly changing economic environment, unpredictable business model, whether or not countries around the world adopt the International Financial Reporting Standards (IFRS), especially fair value accounting, to reflect business transactions has become an important accounting decision. One major concern on above accounting decision is the use of fair value accounting. Despite its relevance of financial information to investors, fair value measurement is temporally excluded from the alternatives of accounting policy for long-lived assets by Financial Supervisory Commission in Taiwan since the full adoption of IFRS in 2013. The rationale behind the exclusion is the reliability concern of the revaluation model for long-lived assets. In addition, the mixed results from the past studies also highlight the tradeoff between reliability and relevance of fair value accounting. By contributing to this line of studies, this study uses listed UK firms as the research sample to investigate the impact of the adoption of the revaluation model on firms’ equity cost of capital. The empirical results show that British firms adopting the revaluation model have lower systematic and total risks, compared to their counterparty selecting the cost model. These results suggest that when firms adopt the revaluation model, long-lived assets are measured at their real economic value, thus, enhancing the transparency of accounting information and facilitating investors’ economic decision. As firms’ equity cost of capital is indirectly measured by systematic or total risk, the reduced systematic or total risk resulting from disclosure of long-lived assets’ fair value in financial statements implies lower equity cost of capital.