The Accounting, Governance, and Sustainability (AGS) Research Group at the School of Finance and Accounting, Westminster Business School, proudly hosted a stimulating and insightful research seminar titled “Do Accounting Standards Affect Financial Statements? Evidence from Firms with Twin Financial Statements.” The session was delivered by Professor Bjørn Jørgensen, Professor of Accounting at Copenhagen Business School (CBS).
This thought-provoking seminar explored the extent to which accounting standards influence reported figures in financial statements and the interpretation of a company’s financial health, even when the underlying economic activities remain unchanged. The seminar focused on a distinctive and robust empirical setting: a sample of EU-domiciled firms that are cross-listed on U.S. stock exchanges. These companies are required to prepare and submit two separate sets of consolidated financial statements each year—one under U.S. Generally Accepted Accounting Principles (U.S. GAAP) for the U.S. Securities and Exchange Commission (SEC), and the other under International Financial Reporting Standards (IFRS) for regulators in their home EU countries.
By examining these “twin financial statements,” the research seminar was able to isolate the direct impact of accounting standards, independent of operational or transactional differences. The findings demonstrated significant and systematic variations between U.S. GAAP and IFRS in key financial measures, including Return on Equity (ROE) and Return on Assets (ROA), highlighting how accounting frameworks shape perceptions of performance and profitability. In addition to ratio analysis, the seminar delved into the implications of these standard-based differences for predictive modelling and earnings management. Despite firms engaging in identical economic activities, it presented compelling evidence of divergence in bankruptcy prediction outcomes and the degree of discretionary earnings management across the two standards.
A critical insight shared during the seminar related to the methodological challenges faced in empirical research. Traditional matching techniques—often reliant on financial variables such as total assets—were shown to falter across differing accounting regimes. The research revealed that attempts to match IFRS-reporting firms with their U.S. GAAP counterparts (and vice versa) resulted in incorrect matches in approximately 60% of cases. These mismatches significantly compromised the reliability of cross-standard comparisons, particularly in studies on earnings manipulation.
Overall, this seminar shed light on the profound influence of accounting standards not only on financial reporting outcomes but also on the methodological integrity of academic studies. It provided timely and valuable insights for researchers, regulators, and practitioners who engage with financial reporting across multiple jurisdictions, reinforcing the need for caution when interpreting or comparing financial data prepared under different regulatory frameworks.
