GAAP and IFRS conversions
The globalization of business has spurred an unprecedented surge of cross-border M&A over the past decades, and many companies around the world consider cross -border M&A as an essential tool in achieving globalization of their businesses. Such cross-border M&A often requires US GAAP or IFRS conversion of local GAAP financial information for various reporting purposes.
In addition, as more and more countries around the world adopt IFRS, companies reporting in these countries change their reporting standards, making it necessary for their subsidiary or branch operations in the US to convert to IFRS.
Converting a set of financial information from one GAAP to another and embedding such processes of GAAP conversion require transformational change throughout the organization, affecting business processes, legal, IT, tax, accounting and reporting aspects of the business, to name a few.
Timely assessment of the US GAAP or IFRS conversion impact on key financial information such as revenues, net income and a leverage ratio as part of due diligence gives buyers comfort they need. Finding the best way to convert a set of financial information and to embed such conversion processes, can save time and effort and aid in effective communication to market.
Neil Dhar, Partner
Impacts to companies:
- Changing numbers: Reported numbers will be changed under a different GAAP.
- Changing people: New GAAP will become the new language in internal and external communication and people at different levels and functions will need trainings.
- Changing processes: New reporting processes will be established.
- Changing systems: Data availability and system requirement will be revisited. Management information systems will be realigned.
- Changing business: Performance and debt covenant compliance will be measured based on new GAAP numbers. Budget will be established based on new GAAP numbers.
What companies should do:
- Before buying or selling foreign businesses, consider key GAAP conversion implications in connection with major agreements including debt covenants, and investor communications.
- After acquiring foreign businesses, prepare a well thought-out plan to accomplish GAAP conversion within a required timeline and to embed such GAAP conversion processes throughout the organization.
- Consult with experienced specialists, who can guide through the process to avoid trial and error.