Disclosure versus recognition: The case of asset revaluations

Cotter, Julie and Zimmer, Ian (2003) Disclosure versus recognition: The case of asset revaluations. Asia-Pacific Journal of Accounting and Economics, 10 (1). pp. 81-99. ISSN 1608-1625


Australian GAAP requires firms to either disclose or recognize the current values of real estate in their financial statements. Given recognition criteria related to reliable measurement, the propensity to recognize an upward revaluation is subject to the inherent uncertainty of the assessed increase in value. Accordingly, we predict and find that managers are more likely to recognize (rather than just disclose) revaluations when the revaluation estimate is more reliable. The recognition criteria contained in Australian GAAP implies that market participants will rationally infer that revaluations recognized in the balance sheet are more reliably measured than those disclosed in footnotes. An analysis of share market effects finds that the market discounts disclosure compared to recognition of real estate revaluations. This effect becomes insignificant when controls for the reliability of revaluations are included in the analysis, and we therefore conclude that the value relevance of recognized revaluations is not due to recognition per se, but rather to the fact that the assets being revalued are more reliably measured.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Awaiting publisher permission.
Faculty / Department / School: Historic - Faculty of Business - Department of Accounting
Date Deposited: 13 Apr 2008 11:40
Last Modified: 02 Jul 2013 22:45
Uncontrolled Keywords: recognition, disclosure, asset revaluation, revaluation
Fields of Research : 15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150103 Financial Accounting
15 Commerce, Management, Tourism and Services > 1503 Business and Management > 150303 Corporate Governance and Stakeholder Engagement
URI: http://eprints.usq.edu.au/id/eprint/2538

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