Fair Value Accounting for Property, Plant & Equipment: Impact of IFRS 1 Adoption

• In Event: Financial Accounting and Reporting 3

Abstract

This paper uses a unique setting of Canadian public firms adopting IFRS to investigate what companies revalue PP&E under the deemed cost provision in IFRS 1 and whether the market reacts to these revaluations. Consistent with the political pressure hypothesis of Positive Accounting Theory, we predict and find that large firms are more likely to revalue PP&E. Utilizing the probit model, difference-in-difference approach, and Wald test, we find that the fair value election for PP&E under IFRS 1 does make a difference in future net income and stock returns, and investors react negatively to the fair value information for asset measurement, consistent with prior studies on other types of assets.

Authors

• Yan Jin, University of Central Oklahoma

• Flora Niu, Wilfrid Laurier University

• Leo Sheng, York University