De Facto Convergence of IFRSs and U.S. GAAP - An Empirical Analysis of Form 20-F Reconciliations of EU Companies

Abstract:     
This paper examines the level of de facto convergence of IFRSs and US GAAP based on Form 20-F reconciliations of 114 EU companies. Our analysis of 1.928 reconciling items illustrates that de facto differences between IFRSs and US GAAP are heterogeneous and often material in both net income and shareholder's equity. Particularly, adjustments for business combinations, intangibles and pensions are predominant. We find significant differences between numerical adjustments (1) of first-time adopters and non-first-time adopters of IFRSs, (2) of companies in the financial and non-financial sector, and (3) of companies domiciled in common law and code law countries with each former group tending to larger adjustments. This implies that adoption effects and institutional factors impact the amount of adjustments. Our overall results indicate a poor level of de facto convergence achieved to date and an inconsistent application of accounting standards. Particularly, results imply earlier profit recognition under US GAAP and more conservative accounting under IFRSs, which are more prevalent in common law countries than in code law countries.

Keywords: accounting convergence, cross listing, Form 20-F, IFRSs, reconciliation, U.S. GAAP

JEL Classification: M41, M44, M47

Accepted Paper Series