Accounting Quality: International Accounting Standards and US GAAP

We compare measures of accounting quality for IAS firms to those for US firms to investigate whether US GAAP-based accounting amounts are associated with less earnings management, more timely loss recognition, and higher value relevance than IAS-based accounting amounts. We find that US firms exhibit higher accounting quality than IAS firms. Comparisons of accounting amounts for IAS and US firms before and after the IAS firms adopt IAS suggest that application of IAS reduces, but does not eliminate, differences in accounting quality. The comparison of the quality of accounting amounts for IAS and US firms in recent years yields inferences similar to those of the entire sample period. We also find that the quality of IAS accounting amounts does not differ from that of US GAAP accounting amounts reconciled from domestic GAAP and reported by non-US firms that cross list on US markets. Our results suggest that although IAS accounting amounts are of lower quality than those of US GAAP applied comprehensively, they are of comparable quality to reconciled US GAAP amounts reported by cross-listed firms.