Do IFRS-based and U.S. GAAP-based ratios render equivalent information?
by Thomas Zeller; John Kostolansky; Michail Bozoudis
International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), Vol. 16, No. 2/3, 2020

Abstract: This study examines the extent to which financial ratio attributes (factors) based on International Financial Reporting Standards (IFRS) are comparable to those based on U.S. generally accepted accounting principles (U.S. GAAP). Using principal component analysis we empirically identify and test the stability of the financial attributes under each reporting framework for the period 2011-2015. Next, we use congruency analysis to identify the comparable financial measures found in each reporting framework. We find seven attributes are comparable within the two frameworks: asset relationship, capital structure, fixed asset usage, liquidity, profit margin, return performance and turnover. The findings provide an empirical basis to formulate testable hypotheses regarding the value relevance, predictability, and descriptive utility of financial ratios drawn from IFRS-based and U.S. GAAP-based financial statements. Given that IFRS-based reporting is predominant in the financial reporting world, it seems essential to empirically establish and validate the comparability of IFRS-based and GAAP-based financial attributes.

Online publication date: Mon, 01-Feb-2021

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