JOURNAL OF INTERNATIONAL ACCOUNTING RESEARCH American Accounting Association Vol. 15, No. 3 DOI: 10.2308/jiar-51404 Fall 2016 pp. 113–130 The Advent of IFRS in Canada: Incidence on Value Relevance Denis Cormier University of Quebec at Montreal Michel L. Magnan Concordia University ABSTRACT: The paper focuses on Canada’s enactment of IFRS for publicly accountable firms. We investigate whether IFRS meet one of their stated goals, which is to improve financial statements’ relevance for stock markets. Results show that migrating from Canadian GAAP to IFRS enhances the value relevance of earnings but the effect is concentrated among firms that are cross-listed in the U.S. (and that do not report according to U.S. GAAP). The advent of IFRS enhances the value relevance of information contained in footnotes but attenuates the need for non- GAAP measures’ disclosure. Stock market prices also embed more precise anticipations about future IFRS earnings. Additional analyses suggest that less earnings management accompanies IFRS adoption. Our results suggest that, for cross-listed firms, the adoption of IFRS enhanced the comparability of their financial statements and, ultimately, their value relevance. Keywords: IFRS; market-to-book; non-GAAP; predictability; reliability; value relevance. I. INTRODUCTION O ver the past decade, the increased globalization of worldwide capital markets has led to the realization that global convergence in accounting standards was a desirable aim. In this regard, International Financial Reporting Standards (IFRS) have emerged as the reference in most countries around the world. 1 IFRS’ growing international recognition was also enhanced by the collaboration between the United States’ (U.S.) Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on several joint projects. Meanwhile, the U.S. Securities and Exchange Commission (SEC) initially expressed an interest in eventually migrating toward IFRS. As a stopgap acknowledgment of IFRS’ increasing stature, firms reporting under IFRS and listed in the United States are exempt from filing Form 20-F requiring a reconciliation of earnings prepared in accordance to domestic accounting standards to earnings prepared in accordance to U.S. Generally Accepted Accounting Principles (GAAP). Nevertheless, as of today, there is no clear road map toward the adoption of IFRS by the U.S. In fact, recent events suggest tensions in this regard. 2 FASB’s and IASB’s diverging paths in the resolution of some of their joint projects on leases and insurance contracts do illustrate that convergence is still far in the future. Within that context, our paper investigates whether the We thank workshop participants at the Sprott School of Business (Carleton University) and at Corporate Reporting Chair (University of Quebec at Montreal School of Management Sciences) for their comments and suggestions. All usual caveats apply. We acknowledge financial support from Autorite ´ des marche ´s financiers (Que ´bec) and the S. A. Jarislowsky Chair in Corporate Governance (Concordia University). Michel L. Magnan is a member of the Canadian Accounting Standards Board (AcSB). However, the content of this paper reflects his own personal views and interpretations and should in no way be construed as representing the position of the AcSB. Editor’s note: Accepted by Ervin L. Black. Submitted: January 2015 Accepted: January 2016 Published Online: February 2016 1 Currently, the United States, China, Japan, and India remain outside the IFRS scope but have various formal and informal links with the IASB and have announced an interest in either adopting them or in working toward some form of convergence with them. 2 For example, in November 2012, speaking at the Financial Reporting Outlook Conference organized by Ernst & Young and held at Westminster, Stephen Haddrill, Chief Executive Officer of the United Kingdom’s Financial Reporting Council, stated that the IASB’s unsuccessful attempts with regard to its program of convergence with the FASB is a ‘‘failure,’’ as one specific set of accounting principles/standards have not been achieved despite more than ten years of efforts (see http://www.readyratios.com/news/ifrs/2150.html). 113