Disclosure versus recognition: The case of asset revaluations

Article

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.
Article Title

Disclosure versus recognition: The case of asset revaluations

ERA Journal ID18501
Article CategoryArticle
AuthorsCotter, Julie (Author) and Zimmer, Ian (Author)
Journal TitleAsia-Pacific Journal of Accounting and Economics
Journal Citation10 (1), pp. 81-99
Number of Pages19
Year2003
Place of PublicationHong Kong
ISSN1029-3574
1608-1625
Abstract

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.

Keywordsrecognition, disclosure, asset revaluation, revaluation
ANZSRC Field of Research 2020350103. Financial accounting
350799. Strategy, management and organisational behaviour not elsewhere classified
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Byline AffiliationsFaculty of Business
University of Queensland
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