Does the SEC's Waiver of IFRS to U.S. GAAP Reconciliation Improve the Quality of Financial Reporting?

Abstract

This paper compares accounting-quality metrics for foreign firms before and after the SEC waived the reconciliation requirement for IFRS firms. We find that foreign issuers applying IFRS exhibit more income smoothing and less timely recognition of losses than do foreign firms filing U.S. GAAP reconciliations in the IFRS reporting period. However, we also find that accounting amounts are more value relevant for IFRS firms than their counterparts. Differences in accounting quality between the two sets of firms in the U.S. GAAP reconciliation period do not account for the IFRS reporting-period differences. Our findings also document that foreign firms filing U.S. GAAP reconciliations experience a greater improvement in accounting quality in terms of less earnings smoothing and more timely recognition of losses than do foreign issuers adopting IFRS between the U.S. GAAP reconciliation and IFRS reporting periods. Overall, the combined evidence suggests that application of IFRS by non-U.S. firms has not enhanced financial reporting comparability with firms filing U.S. GAAP reconciliations. The above implications are robust to a number of alternative specifications.

The changing IFRS debate in the USA: a rejoinder

“…In contrast, Chao and Horng (2013) found evidence suggesting that IFRS adoption by non-US firms did not enhance financial reporting comparability with firms filing GAAP reconciliations. Barth et al (2012) found that IFRS adoption by non-US firms resulted in accounting figures comparable to those reported under GAAP by US firms.…”