What impact does the fair value measurement model have on the accounting of investment houses?

Due to the introduction of fair value model in the recognition and measurement of investment real estate, it will have a very important impact on the financial situation, operating results and cash flow disclosed by China's real estate industry. Mainly in the following aspects:

First, it has a significant impact on the book net assets of investment real estate enterprises. According to China's new accounting standards, the land occupied by real estate development enterprises and projects under construction do not belong to the category of investment real estate. Therefore, the introduction of fair value measurement mode in the new standards has little impact on pure real estate development enterprises. For companies with a large proportion of investment properties, the impact is greater. The characteristic of fair value measurement mode is to reflect the change of market to enterprise asset value. Therefore, the introduction of fair value will not only have a positive effect on the net assets of enterprises, but also reduce the value of enterprises in the face of unfavorable market environment. This is also what real estate enterprises need to consider.

The second is to increase the profit fluctuation of related enterprises. After adopting the fair value measurement model, the impact on the annual net profit of related companies depends on the degree of change in the value of investment real estate, and the depreciation and amortization problem under the cost method has also changed from explicit in the past to implicit. In this way, the net profit will fluctuate according to the change of fair value, thus changing the characteristics of stable profits in China real estate market in the past. Due to the great development of China real estate market in recent years, the profits of real estate enterprises are more obviously affected by market fluctuations. After the introduction of fair value, the profits of real estate enterprises can not only reflect the operating conditions of enterprises, but also reflect the price trend of real estate market. If fair valuation is adopted, the property of investment real estate is reflected in continuous appreciation, and the net profit of the current year will also continue to increase after being included in the current profit and loss. The profit increase brought by this value-added is different from the improvement of enterprise profit level, and various influencing factors are greatly increased, which will play a role in the new market structure and achieve balance, thus bringing an instability to enterprise profits.

Third, it will affect the quality of accounting information. A basic problem of financial accounting theory is how to balance the relevance and reliability of accounting information. Book value focuses on solving the reliability of accounting information, while fair value focuses on solving the relevance of accounting information. From the point of view of decision usefulness, for financial instruments, investment real estate and other accounting objects, fair value measurement is obviously superior to other measurement methods. In terms of fair value, the valuation level of enterprises may change because of the new accounting standards, which mainly comes from the improvement of accounting information quality by the new accounting standards. From this perspective, the implementation of the new accounting standards will provide investors with higher quality accounting information, which may change the previous judgments and expectations of enterprises, or enhance investment confidence, leading to changes in company valuation.