Using IFRS or U.S. GAAP in the United States: The Case of Audit Fees

SUMMARY We find that U.S.-listed foreign firms using IFRS pay higher audit fees than those that report using U.S. GAAP. Additional analyses reveal that our key inference is not due to the differences in the demand for Big 4 auditors, familiarity with IFRS, listing status, financial reporting quality, country composition, or adoption of IFRS in the home country. Moreover, using path analysis and a three-way comparison, we provide evidence that audit effort explains the association between the use of IFRS and audit fees beyond litigation and regulatory risk. Our findings are of potential interest to U.S. cross-listed firms contemplating the use of IFRS, investors interested in learning about the costs of using different accounting standards, regulators concerned about the audit cost of requiring IFRS in the U.S. audit market, and academics investigating audit fee differences. JEL Classifications: M41; M42; G15; M48.