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Reducing the burden of US GAAP reconciliations by foreign companies listed in the United States: the key question of materiality

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  • Carol Adams
  • Pauline Weetman
  • Edward Jones
  • Sidney Gray

Abstract

The European Commission has long been concerned over the extensive disclosures required by the Securities and Exchange Commission (SEC) in form 20-F. As the IASC moves towards completing its core standards programme to the satisfaction of IOSCO, the debate has centred around the likelihood of its acceptance by the SEC. This paper examines aspects of the reconciliations to US GAAP, provided by UK registrant companies, and proposes an approach of selective disclosure focusing on material items. We find that goodwill was the dominant adjustment prior to the implementation of FRS 10. When goodwill is excluded there were on average 4.9 adjustments to net income and 5.8 adjustments to shareholders' equity per company reporting. Defining materiality as 10% or more of the reported US net income or shareholders' equity and disregarding immaterial items reduces these to an average of only 1.6 adjustments to the income statement and 0.6 adjustments to shareholders' equity per company. We find that the majority of adjusting items in the reconciliations are not material, adding weight to arguments opposed to the reconciliation requirements. We consider the possibility of a more focused disclosure requirement for foreign companies reporting to the SEC.

Suggested Citation

  • Carol Adams & Pauline Weetman & Edward Jones & Sidney Gray, 1999. "Reducing the burden of US GAAP reconciliations by foreign companies listed in the United States: the key question of materiality," European Accounting Review, Taylor & Francis Journals, vol. 8(1), pages 1-22.
    • Handle: RePEc:taf:euract:v:8:y:1999:i:1:p:1-22
    DOI: 10.1080/096381899336122
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    References listed on IDEAS

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    1. Carol Adams & Pauline Weetman & Sidney Gray, 1993. "Reconciling national with international accounting standards," European Accounting Review, Taylor & Francis Journals, vol. 2(3), pages 471-494.
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    2. Visani, Franco & Di Lascio, F. Marta L. & Gardini, Silvia, 2020. "The impact of institutional and cultural factors on the use of non-GAAP financial measures. International evidence from the oil and gas industry," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 40(C).
    3. Webber, Sarah J. & Nichols, Nancy B. & Street, Donna L. & Cereola, Sandra J., 2013. "Non-GAAP adjustments to net income appearing in the earnings releases of the S&P 100: An analysis of frequency of occurrence, materiality and rationale," Research in Accounting Regulation, Elsevier, vol. 25(2), pages 236-251.
    4. George Emmanuel Iatridis, 2012. "Voluntary IFRS disclosures: evidence from the transition from UK GAAP to IFRSs," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(6), pages 573-597, June.
    5. Ioannis Tsalavoutas & Lisa Evans, 2010. "Transition to IFRS in Greece: financial statement effects and auditor size," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(8), pages 814-842, September.
    6. Niamh Brennan & Claire Marston, 1999. "A comparative analysis of required financial disclosures in US, UK and international accounting standards," Open Access publications 10197/2969, Research Repository, University College Dublin.
    7. Nurunnabi, Mohammad & Donker, Han & Jermakowicz, Eva K., 2022. "The impact of mandatory adoption of IFRS in Saudi Arabia," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).
    8. Michael Dobler & Nina Günther, 2008. "Stand der de facto-Konvergenz von IFRS und US-GAAP — Eine empirische Analyse der Überleitungsrechnungen nach Form 20-F von Unternehmen aus der Europäischen Union," Schmalenbach Journal of Business Research, Springer, vol. 60(8), pages 809-845, December.

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