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.

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