Suppose that a foreign company plans to crosslist its shares on a U. S. securities exchange. The
Question:
Suppose that a foreign company plans to crosslist its shares on a U. S. securities exchange. The company currently uses local GAAP. Before applying for crosslisting, it plans to switch its current and future financial statements to IASB GAAP for reporting in its home country to improve the likelihood that its application will be approved. The company is based in a country with weak institutional structures, but wishes to signal its commitment to high-quality reporting and high corporate governance standards.
Required
a. Explain why crosslisting is a credible signal of this commitment.
b. What are the higher costs that a company from a country with weak institutional structures to support capital markets and protect investors would face if it switches to IASB GAAP for reporting in its home country?
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
Step by Step Answer:
a Listing on a US stock exchange is a credible signal of commitment to high quality reporting and corporate governance because the expected costs to a ...View the full answer
