The use of the fair value accounting method for investment property in Indonesia

The purpose of this research was to examine the factors that motivate companies in selecting an accounting method to record their investment properties. This study was conducted during the adoption of International Financial Reporting Standards (IFRS) in Indonesia, i.e. the enactment of Financial Accounting Standards Guidelines (Pernyataan Standar Akuntansi Keuangan) (PSAK) No. 13 (2015) on Investment Property. Research conducted on 54 companies listed on the Indonesia Stock Exchange, which reported investment property on their financial statements for the period of 2008-2011. The results were consistent with the motivation to protect creditors through the choice of more conservative accounting methods. The results indicated that it was less likely that a company with high leverage would choose the fair value method. Additionally, this research proved that the motivation to reduce information asymmetry was associated with choosing the fair value method, whereas opportunistic motivation was not associated with choosing the fair value method. Additional findings showed that companies in the property industry were less likely to choose the fair value method. This is consistent with the political cost hypothesis, i.e. a company in the property industry avoids potential increases in tax burden due to an increase in fair value.