Effect of eliminating mandatory reconciliation requirements for foreign issuers in the U.S.
Journal of Financial Reporting and Accounting
ISSN: 1985-2517
Article publication date: 24 June 2019
Abstract
Purpose
The purpose of this paper is to examine the effect of choice of accounting standards on the value relevance and accrual quality of reported earnings and book values under International Financial Reporting Standards (IFRS) versus US Generally Accepted Accounting Principles (GAAP).
Design/methodology/approach
The authors examine the effect of choice of accounting standards on the value relevance and accrual quality of reported earnings and book values under IFRS versus US GAAP using 404 firms from 37 countries listed in the USA. They use the modified Jones (1991) model to measure accruals.
Findings
The authors find that value relevance of the book value of equity is increasing (significantly) when the sample firms use IFRS to prepare their financial statements. They also find some evidence in support of the mediating effect of the choice of accounting standards on the accrual quality of the sample firms. The results of this paper indicate that sample firms with lower accrual quality (larger discretionary accruals) experience higher returns during the fiscal year. However, the authors also find that the positive association between size of discretionary accruals and returns is decreasing in the use of IFRS by the sample firms.
Originality/value
This paper adds to prior literature on the harmonization of accounting standards and emphasizes the role of accounting standards in the quality of financial reporting. By using the financial data of all foreign registrants listed in the USA, the authors are able to provide deeper and more representative evidence.
Keywords
Citation
Kumar, G. and Saini, J.S. (2019), "Effect of eliminating mandatory reconciliation requirements for foreign issuers in the U.S.", Journal of Financial Reporting and Accounting, Vol. 17 No. 2, pp. 271-291. https://doi.org/10.1108/JFRA-02-2018-0008
Publisher
:Emerald Publishing Limited
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