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

This paper uses a unique setting of Canadian public firms adopting International Financial Reporting Standards (IFRS) to investigate the factors that motivate companies to revalue Property, Plant & Equipment (PP&E) under the deemed cost provision in IFRS 1, and whether revaluations help predict future performance, and what is the market reaction to such revaluations. Utilizing the probit model, difference-in-differences approach, and Wald test, we predict and find that large firms and/or firms with higher net PP&E to total assets ratios are more likely to revalue PP&E, and firms adopting the fair value option for PP&E record lower depreciation in the post-IFRS period. In addition, we find that investors react negatively to the firms electing the fair value option for PP&E and the market discounts such revaluation information.