Relative Benefits of Adoption of IFRS and Convergence between IFRS and U.S. GAAP: Evidence from Germany

• In Event: Concurrent Session 1.2: IFRS

Abstract

This study examines whether adoption of IFRS provides an incremental effect on the increased comparability of financial statements beyond convergence between U.S. GAAP and IFRS. Using a setting unique to the German market, we find evidence consistent with prior research that financial statement comparability between firms previously reporting under U.S. GAAP and similar firms reporting in accordance with IFRS increases after all firms use IFRS. However, after separating the convergence and adoption effects using a difference-in-differences method, we find that the convergence and adoption have similar effects on the increased comparability. This finding suggests that adoption of IFRS does not provide significant incremental effect on the increased comparability beyond convergence of IFRS. Since adoption of IFRS is widely believed to be more costly to firms than convergence, the findings of this study may contribute to current policy debates on the costs and benefits of a switch from U.S. GAAP to IFRS.

Authors

• Stephen Wen-Jen Lin, Florida International University

• William Riccardi, Florida International University

• Changjiang Wang, Florida International University