In reading 35 of the CFAI material, there’s a section which discusses from a high level why use of different accounting standards between companies in a country other than the US might result in valuation differences. Makes sense.
One of the specific comments, though, is that:
Research analyzing reconcilaitions by EU companies with US listings shows that most of those companies reported higher net income under IFRS than they would have under US GAAP, and lower shareholders equity under IFRS than under US GAAP, therefore a higher ROE under IFRS than US GAAP.
Are they trying to say this is a long-term trend or it happened to be the case for the fiscal year being reviewed? It would be impossible for IFRS to consistently provide higher ROE; and secondly, a stretch of fiscal periods with higher net income results in higher shareholders equity, eliminating the higher ROE they’re referencing.
Am I missing something?
One of the specific comments, though, is that:
Research analyzing reconcilaitions by EU companies with US listings shows that most of those companies reported higher net income under IFRS than they would have under US GAAP, and lower shareholders equity under IFRS than under US GAAP, therefore a higher ROE under IFRS than US GAAP.
Are they trying to say this is a long-term trend or it happened to be the case for the fiscal year being reviewed? It would be impossible for IFRS to consistently provide higher ROE; and secondly, a stretch of fiscal periods with higher net income results in higher shareholders equity, eliminating the higher ROE they’re referencing.
Am I missing something?