THE VALUE RELEVANCE OF FIXED ASSET

REVALUATION RESERVES IN
INTERNATIONAL ACCOUNTING
BY gyung paik

ANGGOTA KELOMPOK :
Nabella Roma Desi
Nadia A. Rahmi
Nitia L.N
Tata Triana
Yohanes Dwiky
Wildan Afrizal

Latar Belakang
Perbedaan antara US GAAP dan IFRS pada
penilaian Aset Tetap
Penelitian yang sudah dilakukan pada Cadangan
Revaluasi

Hipotesis
H1 : Cadangan Revaluasi adalah nilai yang
relevan. Cadangan revaluasi terkait secara positif
dengan harga saham.
H2 : Cadangan Revaluasi lebih relevan di
negara-negara di bawah common law
dibandingkan dengan negara-negara code law.

Metodologi
Sampel
Semua negara
yang tersedia
database nya di
Industri
Global/Komersial
yang ditemukan
dalam database
Compustat global

1. Cadangan revaluasi
2. Laba bersih
3. Nilai buku ekuitas
4. Selisih saldo
penelitian kembali
(tahunan)

15 negara yang
memiliki ukuran
sampel minimal
30 perusahaan.
- 8 Negara Common
Law
- 7 Negara Code Law

Metodologi
Metode
Data termasuk perubahan tahunan cadangan revaluasi serta laba
bersih dan nilai buku ekuitas sebagai variabel independen untuk
mengontrol efeknya pada harga. Semua variabel independen skala
(dibagi) dengan jumlah saham.

Dianalisa dengan model regresi terhadap variabel dependen yaitu

harga saham tiga bulan setelah akhir tahun fiskal sehingga didapat
selisih penilaian kembali.

Persamaan Model Regresi

Metodologi
Persamaan Model Regresi

Harga = a1NI + a2BV + a3RR +

NI adalah laba bersih yang dilaporkan oleh perusahaan
pada akhir tahun fiskal. BV adalah nilai buku ekuitas
pada tanggal neraca. RR adalah perubahan tahunan
saldo selisih penilaian kembali yang menyesuaikan
nilai buku aset tetap dengan nilai pasar.

Analisis Relevansi Nilai

Analisis Relevansi Nilai: Perbandingan

Negara Common Law dan Negara Code Law

Kesimpulan
Perubahan dari penerapan US GAAP dan IFRS
berpengaruh terhadap nilai pasar perusahaan
Negara yang menggunakan sistem code law
memiliki revaluasi aset tetap yang tidak value
relevant terhadap nilai pasar perusahaan.
Adopsi IAS 16 akan memengaruhi harga saham
di berbagai negara.

CLASSIFICATION OF FINANCIAL INSTRUMENTS

WITH CHARACTERISTICS OF BOTH
DEBT AND EQUITY:
EVIDENCE CONCERNING CONVERTIBLE
REDEEMABLE PREFERRED STOCK

Mark G. McCarthy, East Carolina University

Douglas K. Scheineder, East Carolina University

Introduction
This study addresses one type of compound
financial instrument called convertible
redeemable preferred stock (CRPS)
CRPS is a type of preferred stock that contains a
debt-like redemption feature requiring the issuer
to pay the holder the par value for the preferred
stock at a specified redemption date.

 Ex:
Issuances of CRPS include a $15 million issuance by Frontline
Communications Corporation and Mpower Communications
Corporations $207 million issuance, both in February 2000.
In the US, redeemable preferred stock is currently accounted
for as temporary equity.
According to the Securities and Exchange Commissions (SEC)
Accounting Series Release No. 268, Presentation in Financial
Statements of Redeemable Preferred Stocks (Securities and
Exchange Commission 1979), it should be reported below debt
but above stockholders equity on the balance sheet.

 FASB issued a Discussion Memorandum entitled

Distinguishing between Liability and Equity
Instruments and Accounting for Instruments
with Characteristics of Both. It discussed
alternatives from current reporting standards for
compound financial instruments (1990).
in 1997 FASB formally added redeemable
preferred stock and convertible debt instruments
to its active agenda.

 In March 2000, FASB announced its tentative decisions on

how to approach accounting for compound instruments.
The findings of this study suggest that CRPS is perceived as
debt for sample firms, consistent wit the FASBs tentative
approach to such financial instruments.
This study empirically examines the market perception of
CRPS for fiscal years 1991 through 1995 by employing a
levels approach research design
The result of this study provide insight into investor
perception of a compound financial instrument and
challenge current accounting rules for CRPS.

Research Design & Model Development

Objective of this study : To provide evidence
concerning the market perceptions of CRPS to
the equity value of a firm.
Landsman 1986 use an equation to explain the
variation in the market value of stockholders
equity (ME).

(1)

 Ohlson (1995), models the value of a firm with

the inclusion of an income variable in addition to
the balance sheet.
The hypothesis testing examines the relationship
between stock prices and CPRS as a separate
independent variable.
The following regression equation is estimated
to test how the market perceives CRPS.

Additional Procedures
Potential problems may be encountered with regression
equations are adressed here :
1. Heteroscedasticity
Occurs since large firms tend to have large errors and small
firms usually have small errors.
Method to mitigate : Deflation
2.

Multicollinearity
The imprecision of estimation (high sampling variances)
and a high degree of sensitivity of the estimates of the
coefficients to particular sets of sample data.
Method to mitigate : Asset & Liabilities are combined to
form a single variable, net assets

Sample Selection
To address the research issue in this study a sample is
constructed of firms reporting CRPS for the fiscal years
1991 through 1995. The Compustat data base provides all
the necessary data.
Firms included in this study are those reporting a
positive net income.

 Table 1 presents summary statistics for all of the deflated variables,

dependent and independent, used in the regression model for the years
1991-1995. CRPS, the variable of primary interest, ranges from $0.01 per
share to $17.64 per share across all five years. The mean of CRPS ranges
from $1.14 per share in 1992 to $2.25 per share 1994, while the median of
CRPS ranges from $0.55 per share to $0.95 per share.

 Table 2 presents summary statistics for the sample of firms related

to the mean and median percentage of CRPS to total liabilities and
to total assets. Both percentages increase from the first year, 1991,
to the last year, 1995. The mean CRPS/LIAB ratio percentages range
from 10.1% in 1992 to 16.4% in 1995. The lowest mean CRPS/ASSET
ratio percentage is 6.3% in 1992 and reaches maximum of 10.5% in
1995. The median CRPS/LIAB ranges from 5.6% in 1992 to 10.5%
in 1995. The median CRPS/ASSET ranges from 3.6% in 1992 to
5.4% in 1995. In each year the mean is greater than the median.

 Variance Inflation Factors (VIFs) and Condition Indices (CI)

are also examined and discussed below, but are not shown in a
table for purposes of brevity. As expected, the VIFs for ASSET
and LIAB range from 23 to 155 suggesting a high degree of
multicollinearity (Neter, Wasserman and Kutner, 1985). The
Condition Index values range from 17 to 34 suggesting
moderate dependencies (Belsley, Kuh and Welsch, 1980).
However, for the variable of interest, CRPS, the greatest VIF is
2.2 in 1991 suggesting that multicollinearity may not be a
problem with this variable.

 The results of the initial regressions estimated for each year are
presented in Table 4. The regression models are significant in every
year with the adjusted R-square ranging from 0.4955 in 1994 to .
7654 in 1993. The estimated coefficients for the variables
representing total assets (ASSET) and total liabilities (LIAB) are in
their expected direction in every year, but not significant in all
years. The income variable is significant in all five years and has a
positive coefficient as expected.

 The results for these regressions are presented in Table 5. Consistent

with the previous results, CRPS was negative and significant in 1991
and 1993. The other three years were again insignificant but did have
negative coefficients. These results tend to confirm the findings in
the first regression model of some evidence that the market perceives
CRPS to be primarily a liability. However, the lack of significance of
the coefficient for CRPS in three of the five years leaves open the
possibility that investors may regard CRPS as having a component
other than debt, which logically would be an equity component. If one
subscribes to this interpretation of the results, then the results would
appear to lend support to the FASB's March 2000 proposal to
consider an instrument such as CRPS as primarily a convertible debt
instrument that should be broken up into separate debt and equity
components.

 The pooled results in Table 6 show that ASSET, LIAB, and NI are
significant and in the expected direction. The variable of interest,
CRPS, is negative and significant, suggesting that the market
perceives these instruments as liabilities. However, the entirelydebt conclusion based on a significant coefficient for CRPS is
supported only by the pooled results and not the results for
individual years.

Implications
Current U.S. accounting rules for CRPS place it in 'temporary
equity,' excluded from stockholders' equity and not required to be
included in debt. One could argue that CRPS should be equity since
it has the form of, or is at least called, 'preferred stock' and is also
reported in an pseudo-equity category, albeit temporary equity.
Following this reasoning, all of the CRPS issues should be perceived
by investors as equity, i.e., a positive and significant coefficient. Yet,
that is not what the results of this study found.

Conclusions
In summary, this study can be said to provide at least some evidence
that current accounting rules for CRPS are at variance with investor
perception of CRPS. The importance of these findings to financial
reporting is the suggestion that new standards are needed for at
least one compound instrument, CRPS. Perhaps a future area of
research would be to repeat the tests and design presented in Table
5 for other compound instruments. If other such studies' results
present findings similar to these findings, then additional evidence
would exist to support the need for changes in reporting standards
for compound instruments.