United States GAAP versus international accounting standards: Convergence or divergence. Evidence from Form 20-F

Numerous accounting standards and practices affect the financial statements analyzed by investors and creditors thus bringing into question the comparability of such statements. Firms operating internationally often apply accounting methods and practices accepted by other global firms and investors. Comparability increases, or harmonization occurs, as firms converge toward a few accepted methods or when the number of methods applied decrease. This study analyzes the comparability of profits based on U.S. principles versus International Accounting Standards and other foreign accounting principles. The data for the analysis consisted of the reconciliation items and profits reported in Form 20-F filed by foreign corporations for the time period 1990–2000. A profit-related index of comparability—which has a value of one if there is no difference in U.S. and foreign profits—was calculated and a t-test was applied to determine if the index was different from the value of one and whether it had changed over time. Overall, the index was not found to be significantly different than one, suggesting that harmonization does exist. The relationship between the index and individual reconciliation items was studied through regression analysis to determine which areas contributed toward the differences in reported profits. The analysis was performed for IASs, Canadian, Dutch, Chilean, French, Mexican and United Kingdom accounting principles, as well as the overall sample. The reconciliation items found to be significant regarding International Accounting Standards were: deferred charges, start-up costs, extraordinary items, minority interest, leases and inflation adjustment