Early Evidence from Canadian Firms’ Choice Between IFRS and U.S. GAAP



For fiscal years starting on or after January 1, 2011, Canada abandoned Canadian Generally Accepted Accounting Principles (GAAP) and adopted International Financial Reporting Standards (IFRS) as the dominant accounting standard, yet de facto allowed firms to adopt U.S. GAAP in lieu of IFRS. We document the unintended consequence that more Canadian firms report under U.S. GAAP after Canada adopted IFRS. We find firms more likely to choose IFRS are larger, in the developmental stage, have more R&D expenditures, fewer U.S. operations or fewer U.S. shareholders. Further, the likelihood of IFRS adoption decreases if stockholders' equity under U.S. GAAP exceeds Canadian GAAP in the year before IFRS adoption. Second, consistent with an increase in information asymmetry around Canada's IFRS adoption, bid-ask spreads increase for smaller Canadian firms not listed in the U.S. These results inform U.S. regulators' current decision whether to allow U.S. firms the choice between U.S. GAAP and IFRS.

This seminar is organised by the Erasmus Accounting Research Group.