Disclosure Versus Recognition: The Case of Asset Revaluations

32 Pages Posted: 29 May 2003

See all articles by Julie Cotter

Julie Cotter

University of Southern Queensland

Ian Zimmer

University of Queensland - Business School

Multiple version iconThere are 2 versions of this paper


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.

Keywords: recognition, disclosure, revaluation, reliability

JEL Classification: M41, M44, M45

Suggested Citation

Cotter, Julie and Zimmer, Ian, Disclosure Versus Recognition: The Case of Asset Revaluations. Available at SSRN: https://ssrn.com/abstract=387641 or http://dx.doi.org/10.2139/ssrn.387641

Julie Cotter (Contact Author)

University of Southern Queensland ( email )

Australian Centre for Sustainable Business and Dev
Toowoomba, 4350
+61 7 4631 2916 (Phone)
+61 7 4631 1770 (Fax)

HOME PAGE: http://www.usq.edu.au/users/cotter/

Ian Zimmer

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
+61 7 3365 6775 (Phone)
+61 7 3365 7333 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics