Analyze This! Zicklin Accounting Profs Account for Fewer Forecast Errors
April 22, 2026Accounting standards provide a common language for financial reporting. So what happens when more firms start speaking to investors in the same language (i.e., using very similar accounting standards)? That’s what Zicklin professors Donal Byard and Masako Darrough (Stan Ross Department of Accountancy) set out to examine in a paper published in The Accounting Review in January.
Byard (left) and Darrough (right)
In “Do Larger Reporting Networks Yield Benefits from Information Network Effects?” Byard, Darrough and their co-authors studied the aftereffects of the European Union’s mandatory adoption in 2005 of the International Financial Reporting Standards (IFRS), a set of standardized accounting rules. Specifically, they examined the effects on U.S. firms.
The United States uses a set of accounting standards known as U.S. Generally Accepted Accounting Principles (GAAP), but importantly, “IFRS standards are very close to the U.S. standards,” explains Byard, who is Irving Weinstein Professor in Accountancy and Ross department chair. “Previously, European countries were all using their own differing accounting standards, which were often quite different from the U.S. GAAP; then they adopted a single international standard (IFRS) that are pretty similar to what U.S. accountants use.”
Byard and Darrough hypothesized that this change in international financial reporting would help financial analysts who follow U.S. firms. Potential investors and buy-side analysts who study a particular company with an eye to investing compare its financial performance against industry standards or competitors (a process known as “benchmarking”). With the new IFRS regulations, a U.S.-based analyst could more easily benchmark a U.S. firm against its European counterparts: “A greater opportunity for benchmarking offers a deeper understanding of the firm, which improves information analysis and hypothetically leads to better predictions,” explains Darrough, who is the Irwin and Arlene Ettinger Chair in Accountancy.
This should be particularly true of industries with a smaller number of domestic U.S. firms, such as the auto or oil industries. Given the new, more similar accounting standards, U.S. analysts could now benchmark Exxon or Chevron, for example, against their international peers (TotalEnergies, BP, Shell).
As part of their analysis, Byard, Darrough, and their co-authors examine nearly 131,000 analyst research reports for U.S. firms, using Python to go line by line looking for citations of European competitors. Just as expected, they found that after the mandatory IFRS adoption in Europe, analyst research reports for U.S. firms with relatively few domestic U.S. peers started to mention European peer firms more, and analysts’ absolute forecast errors for these firms declined, relative to those for other U.S. firms
But that’s not all! They also compared the accuracy of forecasts using Japanese companies as a benchmark. Because Japan did not adopt IFRS standards and because its accounting rules differed substantially from both IFRS and U.S. GAAP standards, Byard and Darrough expected that industry forecasts would not change much pre- and post-IFRS adoption. And indeed, that was the case.
As a skeptic might ask, “What does this matter to me?” Anyone who owns stocks, mutual funds, or retirement accounts—the majority of Americans—should be heartened to know that positive spillover effects (in this case, more accurate financial forecasts) can result from global standardization. In an era when deregulation is the vibe, Byard and Darrough present a strong case for the contrary.
To learn more about the Zicklin School’s Stan Ross Department of Accountancy, click here.