When will U.S. domestic companies adopt IFRS? Nobody knows. The U.S. Securities and Exchange Commission (SEC) has once again, postponed the deadline to transition to IFRS for the U.S. domestic registrants based on the concern for the significant difference between IFRS and U.S. GAAP.
Although the U.S. SEC has not allowed U.S. domestic companies to adopt IFRS, it has eliminated the 20-F reconciliation, which required foreign registrants listed in the U.S. to reconcile their non-U.S. GAAP statements to U.S. GAAP as long as their financial statements are prepared in accordance with IFRS. Dr. Chen’s research examines the shareholder wealth effects in U.S. and home-country markets relating to the SEC’s decision to remove the Form 20-F reconciliation. Her research finds that foreign firms cross-listed in the U.S. and that prepare their financial statements in accordance with IFRS, experience a positive U.S. stock price reaction to the SEC’s announcement eliminating 20-F reconciliation. In addition, the stock market reactions for the IFRS sample relates to the potential cost savings and inversely relates to the magnitude of the 20-F reconciliation from IFRS to U.S. GAAP.
Overall, Dr. Chen’s research suggests that shareholders value reconciliation information to U.S. GAAP, but generally the costs of preparing and auditing reconciliations outweigh the loss of information. Moreover, information loss is less pronounced for firms having used IFRS for a longer period, suggesting that the IFRS can be learned over time by U.S. investors. Hence, Dr. Chen’s research lends support to the SEC’s decision to remove the reconciliation.
Chen’s academic research has appeared in premier journals such as The Accounting Review, Contemporary Accounting Research, Auditing: A Journal of Practice and Theory, Journal of Accounting, Auditing, and Finance, and Accounting Horizons. She has won the Center for Global Leadership Research Excellence Award twice. She is currently an associate editor for International Journal of Accounting, Auditing, and Performance Evaluation and co-chair of the 2015 ethics research symposium of the American Accounting Association.
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IFRS vs U.S. GAAP
Professor of Accounting & Information Systems, Dr. Lucy Chen examines the current issues between IFRS vs U.S. GAAP. Click here to read more.