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Regulated markets, Valuation relevance, Earnings and nonearnings information, Airline industry,

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Purpose This paper aims to examine whether sanctioning adoption of IFRS for US firms would produce accounting information of the same quality as those produced under US Generally Accepted Accounting Principles (GAAP). This is a timely research since the Securities and Exchange Commission (SEC; 2014) has asked for further review. Design/methodology/approach This study uses restatements of financial statements made by a sample of foreign firms listed on US stock exchanges using International Financial Reporting Standards (IFRS) in comparison to a control sample of US firms using US GAAP during the period of 2001to 2010. Statistical analysis of the frequency, sources and magnitude of the restatements and market revaluations to the announcement of the restatements are examined. Cross-country differences are also examined. Findings The results indicate that IFRS firms have a lower rate of restatements than US GAAP firms but with no significant differences in terms of sources of restatements and the impact on net income or shareholders’ equity. The market revaluations to restatement announcements show no significant differences between the two accounting regimes. Cross-sectional analyses indicate IFRS firms are on average from countries characterized by weak rule of law, ineffective corruption controls and lower efforts to promote private sector advancement. Research limitations/implications The sample size in the paper is relatively small. To increase validity of the inferences from the Results, this issue should be readdressed with larger sample. Practical implications Results are important to accounting practitioners and policymakers. Social implications Results are contributing in clarifying the SEC’s concerns of adopting the IFRS by US-based firms; thus, saving the investors the additional efforts and costs in comparing financial statements prepared under different accounting regimes. Originality/value This research is the first to use restatements as accounting quality criteria. The results suggest that adoption of IFRS by US-based firms would not produce accounting information that is significantly different in quality from those generated under US GAAP. This result should be of interest to the SEC in clarifying its concerns.

(JEL M4, F3)