Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, April 11, 2010

Barth et alia on Comparability of Accounting Standards

Are International Accounting Standards-Based and US GAAP-Based Accounting Amounts Comparable?, by Mary E. Barth, Stanford Graduate School of Business; Wayne R. Landsman, University of North Carolina at Chapel Hill - Accounting Area;Mark H. Lang, University of North Carolina at Chapel Hill; and Christopher D. Williams, University of Michigan - Stephen M. Ross School of Business, was recently posted on SSRN.  Here is the abstract:

This study documents the extent to which application of IFRS as applied by non-US firms results in accounting amounts that are comparable to those resulting from application of US GAAP by US firms. We operationalize comparability by assessing accounting system comparability and value relevance comparability. Accounting system comparability metrics are based on the difference between predicted stock prices (stock returns) resulting from applying US GAAP and IFRS pricing multiples to each firm’s earnings and equity book value (earnings and change in earnings). Value relevance comparability metrics are based on differences in value relevance of these accounting amounts between US and IFRS firms. IFRS firms have higher accounting system and value relevance comparability with US firms when IFRS firms apply IFRS than when they applied non-US domestic standards. In addition, comparability is higher for IFRS firms that adopted IFRS mandatorily, for firm-year observations after 2005, and for IFRS firms domiciled in countries with common law legal origin. Additional findings indicate US firms generally have higher value relevance of accounting amounts than IFRS firms. However, value relevance is not significantly higher for US firms than for IFRS firms that adopt IFRS mandatorily and those domiciled in common law countries, which indicates value relevance comparability for these firms. Overall, the findings suggest widespread application of IFRS by non-US firms has enhanced financial reporting comparability with US firms, but differences remain for some firms.

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