Difference between CameraRAW and Photoshop

I think I might have figured this out. It is one strange problem! It actually makes sense and there does not seem to be a bug. But…it is extremely difficult to understand and troubleshoot, unless all of these concepts are understood first: 

• Camera Raw renders through its Workflow Color Space profile, so it is a form of soft-proofing and applies every option including Intent and Simulate Paper & Ink. We like this, it’s useful when editing in Camera Raw for a specific delivery medium. 
• A Camera Raw Smart Object in Photoshop respects and displays the rendering of the Workflow Color Space profile applied within the Smart Object. 
• If you send a Camera Raw file to Photoshop as a Smart Object, the document profile of that new containing Photoshop document is set to the Workspace Color Space of the Smart Object it was created for. Makes sense, why not. 

• The final appearance in Photoshop is each Smart Object’s profile through the Photoshop document profile. That is as it should be. But in this question’s example, it looks limited because it is limited by those settings: You are not seeing the full range of the file in Photoshop, you are seeing it limited by both the Camera Raw Smart Object’s Workspace Color Profile, and the Photoshop document profile which is probably set to the same output-specific profile. If you want to see the full range image and not one constrained to the limitations of that profile, open the Camera Raw Smart Object layer and change the Workspace Color Profile to a more universal and wider color space, such as Adobe RGB or ProPhoto RGB.

However, when I tried the fix in that last item, it did not completely fix the problem. This is where I found something that looks crazy and unexpected, but is actually logical and correct after thinking through the above points: If a Photoshop document was created specifically by opening an image as a Camera Raw Smart Object, and you change the Workflow Color Space of that Camera Raw Smart Object, the Photoshop document profile is not changed. But that was taken from the original Camera Raw Smart Object, so it still affects the display of that Smart Object even though the Smart Object is now set to display different color settings. So the Smart Object’s color profile is changed, but its appearance in the Photoshop document does not change. I noticed this only because I keep my status bar set to Document Profile, and I could see it was still the original document profile taken from the Camera Raw Smart Object import.

The solution, then, has two parts:

1. In the Camera Raw Smart Object, make sure the selected Workflow Color Space profile is the one you want to use to render how the Camera Raw Smart Object looks in Photoshop. 

2. In the Photoshop document, make sure the assigned document profile is the one you want to define the appearance of the entire Photoshop document, and if it is not, choose Edit > Assign Profile and correct it.

Usually you want Convert to Profile, but in this case, that will flatten all layers so you would lose the Smart Objects. Assign Profile is OK in this scenario (if the document contains only Camera Raw Smart Object layers) because the Smart Object layers will be re-rendered through the new document profile, making them look as expected after assigning a different document profile. (Although the display actually looked buggy and wrong while previewing Assign to Profile; although this was alarming, it looked correct after clicking OK.)

You can see what I mean if you watch the animation below that flips between two versions, before and after assigning a different Photoshop document profile:

• The document contains two Camera Raw Smart Objects set to different Workflow Color Space profiles, which I labeled using the layer names: The top one is set to Adobe RGB, and the bottom one is set to a matte paper profile for an old inkjet printer, which is how it was set when the document was created from opening a raw file as a Camera Raw Smart Object. The Adobe RGB version was created by selecting the original, choosing Layer > Smart Objects > New Smart Object via Copy, and then changing its Workflow Color Space profile to Adobe RGB. 
• Even though the Adobe RGB preview should look better, the dynamic range of both is visibly limited (Adobe RGB looks wrong)…as long as the Photoshop document profile is still set to the cheap matte paper profile taken from the Camera Raw Workflow setting when the raw file was originally sent to Photoshop as a Smart Object. 
• After the Photoshop document profile is changed to sRGB (using Edit > Assign Profile), now things look as expected: The Adobe RGB Smart Object looks full range, and the cheap matte paper Smart Object still looks limited. 

On a properly adjusted display, as the document profile changes to sRGB at the bottom of the animation, you should be able to see the top one improve, and the bottom one stay the same. They switch every second.

That was a crazy journey!

It would be easy to say this is ridiculous and too complicated. But in reality it does make sense if you want to embed Smart Objects, and is consistent with any other medium where you have a chain of renders where the specs might be different at each stage. It is the same thinking that an audio engineer must master when thinking through gain staging, and that a video editor must master when thinking through nested sequences. The weakest link in the staging chain limits anything after it, so to maximize quality at the final stage, inspect each intermediate stage to ensure its output settings are not adding an unwanted limitation in the middle.

Have you tried simplest yet sometimes effective solution to reset preferences?

I just cannot make any sense of that screenshot from ACR. Why is "Papier brilliant/Elevé" added at the end of the workflow options (bottom)? What does that mean? Where did it come from? ACR can soft proof, but this is not how soft proofing shows in ACR.

This is obviously the key to the whole thing. It looks like a soft proof with "simulate black ink/paper color" baked into the pixel data sent to Photoshop. But how that could ever happen I have absolutely no clue. Yes, this is a smart object from ACR, but that doesn't explain it either.

I need to say that I do all my raw file work in Lightroom Classic, and I almost never open the ACR interface. I'm not as familiar with it. Obviously there's something I'm missing here.

(Bojan - RVB is just RGB in French).

In Camera Raw I see RGB while in Photoshop color mode is RVB? Is that normal for French translation or something is wrong there?