US watchdogs have made telling overtures towards harmonisation by announcing plans to let foreign issuers present their IFRS- compliant accounts without the need to reconcile them to US GAAP. But the glut of differences between the two sets of standards causes major swings.

Comparing industrial companies in the survey, Citigroup discovered 426 reconciliation differences. The main sticking points occurred in the treatment of tax (60), pensions (55), goodwill and intangible assets (53), and financial instruments (40)

Citigroup said: 'The differences could well result in investors and/or analysts coming to different conclusions about the financial position and performance of the business depending on the GAAP used.

'The complexity of the reconciling items means that, for most investors, using the primary GAAP numbers is the only practical option (that is, for dual-list companies generally IFRS). It would appear that if US companies were given the option to use IFRS rather than US GAAP then this would provide a boost to book earnings and returns.'

The study focused on 73 European companies with listed American Depository Receipts- foreign stocks traded on US exchanges. Citigroup looked at the reconciliation between IFRS and US GAAP, provided in annual reports submitted to the SEC for the 2005 and 2006 financial years.

The study found that 82% had higher net income under IFRS, while book value was lower for about 70% of the sample. Overall returns on equity were also much higher on average under IFRS, acccording to Citigroup.

'The differences between the reported numbers for book and earnings under the two GAAPs are clearly material,' it said.

At year end 2006, Chemical giant Bayer's profits under IFRS were 525% higher than under US GAAP. Lloyds TSB posted IFRS profits 54.4% above the US GAAP equivalent, while Diageo (33.7%) and Pearson (30.8%) also showed major inequities.

In breakdowns of book value and equity returns, UK-based companies topped the tables of European companies showing the biggest divergence. BSkyB (84.1%) GlaxoSmithkline (72.9%), Imperial Tobacco (61.5%) and the National Grid (55.8%) all had book values significantly lower under IFRS than the US GAAP equivalent.

Of the 15 companies with the largest differences in returns on equity, the top nine were UK quoted. BSkyB headed the table again with a 382% increase under IFRS followed by major blue chips including Diageo, Intercontinental Hotels and Astra Zeneca.

Profits under IFRS were on average 23% higher for the sampled companies with the median value levelling out at 6%. Despite only covering a two-year period, Citigroup said that the latest figures showed that the median value was dropping, suggesting that some of the differences are being ironed out.

In general, the banking giant believed that there was not much to choose from between the two standards: 'Trying to make investment decisions based on a superior knowledge of the GAAP differences may add some value, but for many of these differences it is difficult to choose a clearly superior accounting treatment.'