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The Effect of the Fair Value Reporting Model on Analyst Forecast Properties: Evidence from Real Estate
Firms

warrants further analysis through an examination of forecast error. If the effect of the
change in accounting standards on forecast dispersion becomes attenuated over time, it is
likely that forecast error exhibits a similar pattern. Our data enable us to assess whether
Liang and Riedl’s (2014) results hold beyond their sample period. Consistent with our

findings regarding the time-varying effect on forecast dispersion and forecast duration, our
analysis reveals that forecast error exhibits an inverse U-shape pattern, meaning that while
forecast error is higher in the period immediately following IFRS adoption, it is no longer

significantly higher in later years.
Our study makes several contributions to the literature. First, it extends prior research
by demonstrating that allowing unrealized holding gains and losses to flow through net
income has a time-varying effect on forecast properties. These insights are valuable for
policymakers as they evaluate the long-term impacts of changes in accounting standards.

While prior studies point out that analysts may bear one-time costs to learn and digest the
new standards (Wang, Hou, and Chen, 2012; Tan, Wang, and Welker, 2011; Ball, 2006),
they do not offer empirical support for this claim. Moreover, while several studies exist

that examine the impact of fair value accounting on financial statement users among
samples pulled from other industries (e.g., banking, agriculture), these studies (Huffman,
2018) focus on the aggregate impact on financial statement users, neglecting temporal
trends. Our study, by documenting the temporary effects on forecast properties, provides
evidence in support of the increased information-acquisition cost argument, representing

the first attempt to investigate adaptation trends following the adoption of new standards.
Second, our evidence indicates that there are no differences in forecast dispersion
or forecast error between the pre-IFRS period and the later years of the post-IFRS period

among UK firms. This finding is linked to the notion of Financial Accounting Standards
Board (FASB) that recognition in the equity section in the balance sheet and recognition
in net income are equally useful for sophisticated financial statement users. Finally, our
findings are likely to be of interest to those who develop and implement US, UK, and
international standards in ongoing deliberations over the extent of the adoption of fair

value accounting. Since fair value accounting is associated with lower forecast dispersion
in the real estate industry, US standard setters may consider fair value accounting
specifically for the real estate industry, while the International Accounting Standards Board

(IASB) may explore the possibility of applying fair value accounting more broadly across

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