Are International Financial Reporting Standards–Based and U.S. GAAP–Based Accounting Amounts Comparable? Evidence From U.S. ADRs

Abstract

This article examines whether accounting amounts reported under International Financial Reporting Standards (IFRS) by firms cross-listed in the United States (American Depositary Receipts [ADRs]) are comparable with those reported under U.S. Generally Accepted Accounting Principles (GAAP). We compare the two samples on the basis of explanatory power of price, return, and cash flow models, timeliness in reporting, accrual quality, and predictive power of accounting. Value relevance, timeliness, and accrual quality of accounting numbers under U.S. GAAP are not significantly different than those under IFRS. The two systems are comparable in predictive power after 2007. Overall, the evidence does not indicate significant differences in accounting quality between reporting under U.S. GAAP and IFRS. Our findings provide evidence to support the policy of the U.S. Securities and Exchange Commission (SEC) in allowing foreign firms listing in the United States to use IFRS for their financial reports without reconciliation to U.S. GAAP.

Earnings Quality: Evidence from Canadian Firms' Choice between IFRS and U.S. GAAP

“… Similarly, Eng, Sun, and Vichitsarawong () studied non‐U.S. firms with American Depository Receipts (ADRs) that were either required or permitted to adopt IFRS instead of U.S. GAAP and overall found insignificant differences in earnings attributes.…”

Discussion of “Security Returns and Volume Responses around International Financial Reporting Standards (IFRS) Earnings Announcements”

“…Given the paper's similarity to these prior studies, particularly Eng et al (2014) and Landsman et al (2012), I would like to have seen more detailed discussion of why one might expect different results from these prior studies and how those expectations relate to differences in the research design choices.…”

“…In general, prior research suggests that, when compared to firms using domestic accounting standards, firms using IFRS have higher-quality and more comparable financial reporting (see, e.g., Barth, Landsman, $_amp_$amp;Lang, 2008;Barth, Landsman, Lang, $_amp_$amp;Williams, 2012;Eng, Sun, $_amp_$amp;Vichitsarawong, 2014). In addition, Landsman, Maydew, and Thornock (2012) find that earnings disclosures for firms in IFRS-mandating countries were more informative (in terms of both prices and trading volume) than firms in domestic GAAP-using countries.…”

IAS/IFRS in Jordan: Adoption, Implementation and Determinants

“…Most of the countries have started to converge their local accounting standards with international standards early [36]. 4 For example, on November 2007 the Securities Exchange Commission (SEC) required foreign firms to use only IFRS in preparing their statements [22,37]. This change has taken place due to the joint efforts between IASB and U.S Financial Accounting Standard Board (FASB) to promote accounting standards universally [14,38].…”

“…This change has taken place due to the joint efforts between IASB and U.S Financial Accounting Standard Board (FASB) to promote accounting standards universally [14,38]. 5 In this context, Eng, Sun and Vichitsarawong [37] found that accounting figures that were reported using U.S. GAAP before 2007 were equivalent to those reported under IFRS after 2007. This modification has also taken place in European Union (EU) countries where the European 4 Convergence is "the process of narrowing differences between IFRS and the accounting standards of countries that retain their own standards" [2, p.9].…”