Abstract
The purpose of this paper is to investigate the implications of an adoption of IFRS in the USA on companies’ earnings and on stock prices. This paper reviews literature on previous accounting changes in the USA and their impacts on stock price, 20-F reconciliations that show higher income under IFRS than US GAAP, as well as a recent study conducted in Europe after its adoption of IFRS. The review of literature indicates that the effect of IFRS adoption in the US market could be negligible and would be firm’s specific. While IFRS adoption could decrease the stock prices of some companies (e.g., those switching from LIFO to another acceptable inventory valuation method), it would increase the stock prices of some other companies (e.g., those that will experience a decline in the cost of equity). This paper also attempts to answer the question why SEC is pursuing a change to IFRS from US GAAP if IFRS adoption could have negligible impact on capital market. The study concludes that the adoption of IFRS in the...
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