Does the Form 20-F reconciliation help ensure the financial reporting quality of cross-listed IFRS firms? A comparison with cross-listed non-IFRS firms

This paper investigates whether financial reporting quality improves or deteriorates after the US Securities and Exchange Commission (SEC) decided to eliminate the Form 20-F reconciliation requirement for foreign cross-listed firms following International Financial Reporting Standards (IFRS). Using a difference-in-differences research design, we find that cross-listed IFRS firms are less likely to restate financial statements after the SEC revoked their reconciliation requirement, as compared to cross-listed non-IFRS firms that still need to prepare the reconciliation. Moreover, such a reduction in the occurrence of financial restatements is more prominent when cross-listed IFRS firms engage global industry-specialist auditors and originate from common law countries. Together, this paper lends support to the elimination of the reconciliation requirement for cross-listed IFRS firms and highlights the important roles of auditors and the legal environment in shaping financial reporting quality.