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This paper examines the changes in earnings quality of registered American Depositary Receipts (ADRs) as a result of switching accounting standards. We aim to shed light on the potential impact of International Financial Reporting Standard (IFRS) adoption on US firms. A suboptimal approach to achieve this goal is through examination of US firms’ surrogates such as ADRs. Unlike previous studies, we made a distinction between registered and unregistered ADRs and affirmed that registered ADRs are the closest surrogates with which to conduct our analysis because they are exclusively required to adhere to the Securities and Exchange Commission (SEC)’s stringent disclosure requirements. When cross-listing their equity on the US exchanges, foreign issuers can file their financial reports with the SEC using IFRS, US GAAP (generally accepted accounting principles), or their domestic GAAP with reconciliation to US GAAP. An improvement in earnings quality is documented when ADRs adopt US GAAP or IFRS versus domestic GAAP. However, when the comparison is made between US GAAP and IFRS, no difference in earnings quality is documented. These results indicate that switching to high-quality accounting standards is likely to improve earnings quality. This improvement is maximized when the difference between reporting standards is high and minimized if otherwise. Our conclusion is that the adoption of IFRS in the US is unlikely to change earnings quality of local issuers. Moreover, we drew a distinction between reconciliation with and adoption of high-quality accountings standards and find that while the former can enhance earnings quality, the latter can further improve it.

This chapter examines the bank stability indicators under two different accounting regimes: Local GAAP-compliant and mixed accounting standards. The objective is to determine whether adopting Local GAAP and IAS/IFRS contributes to bank stability in Asia, focusing on China, Japan, South Korea, Hong Kong, Taiwan, Indonesia, Malaysia, Thailand, Singapore, and the Philippines from 2005 Q1 to 2021 Q4. The findings indicate Local GAAP may have had a detrimental effect on banks’ stability, but the transition to IAS/IFRS improves bank stability. The results also suggest the procyclicality of bank stability for Local GAAP-compliant and mixed accounting banks, increased risk-taking, and bank capitalization during economic/financial upturns. Further, Local GAAP-compliant banks are more susceptible to changes in excessive credit growth, and mixed accounting banks are more vulnerable to changes in economic activities. In addition, the rise in risk appetite is greater than the rise of regulatory buffers for economic and financial upturns for Local GAAP-compliant banks.