The Relative Value Relevance of U.S. GAAP and IFRS

The SEC has allowed foreign private issuers prepared under IFRS without reconciliation since November 2007 and is currently seeking feedback regarding its consideration of allowing US listed companies the option to file supplementary financial reports under IFRS. This study re‐investigates the usefulness of recent 20‐F data on accounting based valuation models: earnings capitalization, book value of equity, and Ohlson (1995). The purpose of this study is to provide the effect of other information in 20‐F captured by differences between IFRS and U.S.GAAP accounting numbers on value relevance of earnings, book value, and both. Using 35 European firms during 2006‐ 2007 in a number of European countries and a range of industries, this study shows no value relevance of differences in earnings and book value between IFRS and U.S. GAAP. These results imply that IFRS is comparable to U.S. GAAP and the elimination of 20‐F reconciliation is suitable.