The Value Relevance of Earnings Components in Two Different GAAPs

The purpose of this study is to explore attribute differences between U.S. GAAP and Iranian GAAP (IRA-GAAP) earnings components. We compare the relative and incremental value relevance of IRA-GAAP and U.S. GAAP based operating cash flows and accruals. The issue is investigated by regressing listed Iranian firms' stock returns on the levels of operating cash flows and accruals in IRA-GAAP and same items adjusted to U.S. GAAP. The results indicate that there are no significant differences between IRA-GAAP and U.S. GAAP based earnings components in explaining stock returns. Thus, operating cash flows and accruals components based on IRA-GAAP are not more value relevant than operating cash flows and accruals components adjusted to U.S. GAAP. The results of this study have important implications for accounting standards setters in Iran and other countries about how cash flow statement classifications affect the value relevance of their items.